Question: The Metallica Heavy Metal Mining MHMM Corporation wants to diversify

The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here:
Stock price........ $ 76
Number of shares...... 40,000
Total assets....... $7,500,000
Total liabilities....... $3,100,000
Net income...... $ 850,000

MHMM is considering an investment that has the same PE ratio as the fi rm. 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 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?

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  • CreatedMarch 13, 2014
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