The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its opera
ID: 2501575 • Letter: T
Question
The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here: MHMM is considering an investment that has the same PE ratio as the firm. The cost of the investment is $640,000, and it will be financed with a new equity issue. The ROE on the investment would have to be percent (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) if we wanted the price after the offering to be $50 per share (assume the PE ratio remains constant), and the NPV of the investment would be $ (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations.). Accounting dilution (Click to select) t occur in this case. Market value dilution (Click to select) t occur in this case.Explanation / Answer
ROE Net Income/ Shareholder Equity % 23.44 ROE $750000/(8100000-4900000)*100 PE Ratio Stock Price/EPS 3.33 EPS Net Income/No.of shares $ 15 Return on investment 640000*23.44% 150016 Net Income=750000+150016 900016 No of shares=50000+64000 par value is 10 assumed 114000 Dilution Accounting=Net Income/No.Of shares $8 Accounting dilution PE Ratio Stock Price/EPS Stock price=3.33*8 $26.64 Market value dilution PE ratio is same 3.33