The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information...

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The Metallica Heavy Metal Mining (MHMM) Corporation wants todiversify its operations. Some recent financial information for thecompany is shown here:
  Stock price $ 64
  Number of shares 40,000
  Total assets $ 8,200,000
  Total liabilities $ 4,000,000
  Net income $ 700,000

MHMM is considering an investment that has the same PE ratio asthe firm. The cost of the investment is $800,000, and it will befinanced with a new equity issue.
The ROE on the investment would have tobe percent
he offering to be $64 per share (assume the PE ratio remainsconstant), and the NPV of the investment would be
occur in this case. Market value dilution
occur in this case.
Accounting dilution

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4.0 Ratings (453 Votes)

a ROE0 Net Income0 Equity0 700000 8200000 4000000 700000 4200000 01667 or 1667 b NI1 ROE0 x TE1 01667 x 4200000 800000 83333333 EPS0 NI0 Shares Outstanding 700000 40000 1750 Number of new shares Cost of Investment Current Share Price See Answer

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The Metallica Heavy Metal Mining (MHMM) Corporation wants todiversify its operations. Some recent financial information for thecompany is shown here: Stock price$64 Number of shares40,000 Total assets$8,200,000 Total liabilities$4,000,000 Net income$700,000 MHMM is considering an investment that has the same PE ratio asthe firm. The cost of the investment is $800,000, and it will befinanced with a new equity issue.The ROE on the investment would have tobepercenthe offering to be $64 per share (assume the PE ratio remainsconstant), and the NPV of the investment would beoccur in this case. Market value dilutionoccur in this case.Accounting dilution


Stock price	$	64
Number of shares		40,000
Total assets	$	8,200,000
Total liabilities	$	4,000,000
Net income	$	700,000