Stock price $ 60 Number of shares 20,000 Total assets $8,400,000 Total liabilities $3,900,000 Net income $ 870,000 MHMM is considering an investment...
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Question

Problem 15-11 Dilution [LO3]

The Metallica Heavy Metal Mining (MHMM) Corporation wants to

diversify its operations. Some recent financial information for the company is shown here:

Screen Shot 2019-12-01 at 01.00.16.png

 

Screen Shot 2019-12-01 at 01.00.16.png

Stock price
$
60
Number of
shares
20,000
Total assets
$8,400,000
Total liabilities $3,900,000
Net income
$ 870,000
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 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 $60 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
occur in this case. Market value dilution
occur in this case.
does not
does

Top Answer

ROE = 19.33% NPV = -440100 Accounting dilution... View the full answer

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