Question

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

Stock price $ 30

Number of shares 30,000

Total assets $ 8,600,000

Total liabilities $ 4,400,000

Net income $ 780,000

MHMM is considering an investment that has the same PE ratio as the firm. The cost of the investment is $750,000, 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 $30 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 does occur in this case. Market value dilution does not occur in this case.

Answer 1

a)	As per given problem, Current Stock Price is $30
	and we wanted price after offering new investment
	is also $30. In ddition to this investment has the same
	PE Ratio as the firm.
	So, EPS of the Investment will also be same as the firm.
	EPS of Investment
	= EPS of Firm
	= Current Net Income / Current Number of Shares
	= $780000 / 30000
	= $26
	New Shares issued for Investment
	= New Investment / Current Stock Price
	= $750000 / $30
	= 25000 Shares
	New Net Income
	= EPS of Investment * New Shares Issued
	= $26 * 25000 Shares
	= $650000
	ROE on Investment
	= New Net Income / Investment
	= $650000 / $750000
	= 0.8667
	i.e. 86.67%
b)	NPV
	= -Initial Investment + New Market Value of the Company - Current Market Value of the Company
	= -Initial Investment + (New Market Price * Total New Shares) - (Current Market Price*Current Shares)
	= -$750000 + ($30*(30000+25000)) - ($30*30000)
	= -$750000 + ($30*55000) - $900000
	= -$750000 + $1650000 - $900000
	= 0
c)	Current Book Value Per Share
	= Equity / Current No of Shares
	= (Total Assets - Total Liabilities) / Current No of Shares
	= ($8600000 - $4400000) / 30000
	= $4200000 / 30000
	= $140
	New Book Value of Shares
	= (Current Equity + Investments) / (Current No of Shares + New Issued)
	= (Total Assets-Total Liabilities+ Investments) / (Current No of Shares + New Issued)
	= ($8600000-$4400000+$750000) / (30000+25000)
	= $4950000 / 55000
	= $90
	Account dilution does occur as book value per share decreases from $140 to $90.
										jeff jeffy Next > < Previous Related Solutions The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company 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 as the firm. The cost of the investment is $800,000, and it will be financed with a new equity issue. The return on the investment will equal... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here: Stock price $ 50 Number of shares 40,000 Total assets $ 6,000,000 Total liabilities $ 2,000,000 Net income $ 500,000     The company is considering an investment that has the same PE ratio as the firm. The cost of the investment is $800,000, and it will be financed with a new equity issue. (Do not round intermediate calculations.)... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here: Stock price $ 69 Number of shares 30,000 Total assets $ 8,700,000 Total liabilities $ 3,600,000 Net income $ 600,000 The company 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 return on the investment will... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company 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 as the firm. The cost of the investment is $800,000, and it will be financed with a new equity issue. The return on the investment will equal... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here: Stock price $ 40 Number of shares 30,000 Total assets $ 9,800,000 Total liabilities $ 4,700,000 Net income $ 420,000     The company 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. (Do not round intermediate calculations.)... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here: Stock price $ 78 Number of shares 20,000 Total assets $ 7,000,000 Total liabilities $ 5,000,000 Net income $ 880,000 MHMM is considering an investment that has the same PE ratio as the firm. The cost of the investment is $750,000, and it will be financed with a new equity issue. The return on the investment will equal... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here: Stock price $ 79 Number of shares 20,000 Total assets $ 8,400,000 Total liabilities $ 2,800,000 Net income $ 420,000 The company 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... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here:   Stock price $ 67   Number of shares 35,000   Total assets $ 8,100,000   Total liabilities $ 4,900,000   Net income $ 750,000 MHMM is considering an investment that has the same PE ratio as the firm. The cost of the investment is $850,000, and it will be financed with a new equity issue. The return on the investment will equal... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here: Stock price $ 75 Number of shares 40,000 Total assets $ 6,000,000 Total liabilities $ 2,000,000 Net income $ 500,000 The company is considering an investment that has the same PE ratio as the firm. The cost of the investment is $800,000, and it will be financed with a new equity issue. The return on the investment will... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information... The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here:   Stock price $ 69   Number of shares 30,000   Total assets $ 8,700,000   Total liabilities $ 3,600,000   Net income $ 600,000 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 return on the investment will equal... ADVERTISEMENT Subjects Accounting Advanced Math Anatomy and Physiology Biology Chemistry Civil Engineering Computer Science Economics Electrical Engineering Finance History Math Mechanical Engineering Operations Management Physics Psychology Statistics and Probability Nursing Other ADVERTISEMENT Latest Questions Describe System Development Life Cycle (SDLC) and how it is used. What symbolism do you find in the play,Oedipus? • Using the Scanner class to obtain input from the user. • Using printf to output... In each of the following situations, develop a tentative plan for the client. List the various... MARGI sells different types of wine. Customers place orders to the most popular “Summer Wine” at... Java. If possible please put explanations for each line of code. Write a test program that... . Use the following information to calculate your company's expected return State Probability Return Boom 20%... ADVERTISEMENT About @ 2020 WizEdu