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The all-equity firm Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here: Stock
The all-equity firm Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here: Stock price $ 81 Number of 20,000 shares Total assets $6,400,000 Total liabilities $4,000,000 Net income $ 760,000 MHMM is considering an investment that has the same PE ratio as the firm. The cost of the investment is $600,000, and it will be financed with a new equity issue. The return on the investment will equal MHMM's current ROE. a. What is the new price per share if the investment is made? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will happen to the book value per share? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What will happen to the market-to-book ratio? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) d. What will happen to the EPS? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) e. What is the NPV of this investment? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a. New price b. Current book value New book value C. Current market-to-book New market-to-book d. Current EPS New EPS e. NPV Does accounting dilution occur here? Yes O No Does market value dilution occur here? 0 Yes
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