Question
The Metallica Heavy Metal Mining (MHMM) Corporation wants todiversify its operations. Some recent financial information for thecompany is shown here: Stock price $ 74 Number
The Metallica Heavy Metal Mining (MHMM) Corporation wants todiversify its operations. Some recent financial information for thecompany is shown here:
Stock price $ 74 Number of shares 40,000 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 return on the investment willequal MHMM’s current ROE.
a. What is the current book value per share? The new book value pershare? (Do not round intermediate calculations and roundyour answers to 2 decimal places, e.g., 32.16.)
b. What is the current EPS? The new EPS? (Do not roundintermediate calculations and round your answers to 2 decimalplaces, e.g., 32.16.) c. What is the current market-to-book ratio? The newmarket-to-book ratio? (Do not round intermediatecalculations and round your answers to 4 decimal places, e.g.,.1616.) d. What is the NPV of this investment? (A negative answershould be indicated by a minus sign. Do not round intermediatecalculations and round your answer to the nearest whole dollaramount, e.g., 32.)
Does accounting dilution occur here?
Yes
No
Does market value dilution occur here? No
Yes
The Metallica Heavy Metal Mining (MHMM) Corporation wants todiversify its operations. Some recent financial information for thecompany is shown here: |
| Stock price | $ | 74 | |
| Number of shares | 40,000 | ||
| 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 return on the investment willequal MHMM’s current ROE. |
| a. | What is the current book value per share? The new book value pershare? (Do not round intermediate calculations and roundyour answers to 2 decimal places, e.g., 32.16.) |
| b. | What is the current EPS? The new EPS? (Do not roundintermediate calculations and round your answers to 2 decimalplaces, e.g., 32.16.) |
| c. | What is the current market-to-book ratio? The newmarket-to-book ratio? (Do not round intermediatecalculations and round your answers to 4 decimal places, e.g.,.1616.) |
| d. | What is the NPV of this investment? (A negative answershould be indicated by a minus sign. Do not round intermediatecalculations and round your answer to the nearest whole dollaramount, e.g., 32.) |
Does accounting dilution occur here? |
|
| Does market value dilution occur here? |
|
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Microeconomics An Intuitive Approach with Calculus
Authors: Thomas Nechyba
1st edition
978-0538453257
