Dilution The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here:

INTERMEDIATE

(Questions 10–18)

Stock price $75 Number of shares 65,000 Total assets $9,400,000 Total liabilities $4,100,000 Net income $980,000 MHMM is considering an investment that has the same PE ratio as the firm. The cost of the investment is $1,500,000, and it will be financed with a new equity issue.

The return on the investment will equal MHMM’s current ROE. What will happen to the book value per share, the market value per share, and the EPS? What is the NPV of this investment? Does dilution take place?