The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its opera

Question

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

MHMM is considering an investment that has the same PE ratio as the firm. The cost of the investment is $700,000, 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? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

What will happen to the market-to-book ratio? (Do not round intermediate calculations and round your final answers to 4 decimal places. (e.g., 32.1616))

What will happen to the EPS? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

What is the NPV of this investment? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.)

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

Explanation / Answer

Answer:

Current Book Value Per share = Shareholder’s Equity / Number of share

Shareholders Equity = Total Assets – Total Liabilities

= 6100000 -3500000 = $2600,000

1.Current Book Value Per share = 2600000 /25000 = $104 Per Share

New Shareholders Equity = 2600000 +700000 = $3300000

New Number of shares =25000 + (700000 /72) = 34722

2.New Book Value Per share = 3300000 /34722 = $95.04 Per Share

Market to Book Ratio = Market Value Per share / Book Value Per share

3.Current Market to Book Value Per share = $72 / $104 = 0.6923

4.New Market to Book Value Per share = $72 / $95.04 = 0.7576

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