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

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Finance

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 tobepercent

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

Answer & Explanation Solved by verified expert
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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Transcribed Image Text

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

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