The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its opera
ID: 2711334 • 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 (Round your answer to 2 decimal places. (e.g., 32.16)) if we wanted the price after the offering to be $40 per share (assume the PE ratio still remains constant), and the NPV of the investment would be $ (Leave no cells blank - be certain to enter "0" wherever required.). Accounting dilution (Click to select)does notdoes occur in this case. Market value dilution (Click to select)does notdoes occur in this case.
The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here:
Explanation / Answer
Details Amount Net Income 4,20,000.00 No of shares 30,000.00 EPS 14.00 Market Price per share 40.00 PE ratio 2.86 Proposed Investment 6,40,000.00 Market Price per share 40.00 No of shares to be issued 16,000.00 Existing EPS 14.00 Required return to maintain same EPS= No of Shares to be issued * Existing EPS 2,24,000.00 ROE=Required Return/Proposed investment=224000/640000 35.00%