The Metalica Heavy Metal Mining (MHMM) Corporation wants to diversity its operat

Question

The Metalica Heavy Metal Mining (MHMM) Corporation wants to diversity 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 dollar 700, 000, and it will be financed with a new equity issue. The return on the investment will equal MHMM's current ROE. What is the current book value per share? The new book value per share? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g. 32.16.) What is the current market-to-book ratio? The new market-to-book ratio? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g.,32.1616.) What is the current EPS? The new EPS? (Do not round intermediate calculations and round your 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 answer to the nearest whole dollar amount. e.g., 32.)

Explanation / Answer

current book value per share= (assets-liability)/no of shares
=(7.7mn-3.7mn)/25,000
=$160

new asset= 7.7mn+700,000=8.4mn
shares issued=700,000/90=7778 shares
all is through equity then liabilty will not change
new book value per share=(new asset-liability)/shares

=(8.4mn-3.7mn)/(25000+7778)
=143.39

current market ot book ratio
=90/160=$.56
new market to book ratio=90/143.39
=0.63

current eps= net income/shares
=640,000/25,000=$25.6
current ROE=640,000/(7.7-3.7mn)=16%
new net income= 640,000+(700,000*16%)
=752,000
new eps= 752,000/(25000+7778)
=22.94

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