10. The Metallica Heavy Metal Mining (MHMM) Corporation wants todiversify its operations. Some recent financial information for thecompany is shown here:
Stock Price $75
Number of shares 64,000
Total assets $9,400,000
Total liabilities $4,100,000
Net income $980,000
MHMM is considering an investment that has the same PE ration asthe firm. The cost of the investment is $1.5 million, and it willbe financed with a new equity issue The return on the investmentwill equal MHMM's current ROE. What will happen to the book valueper share, and the EPS? What is the NPV of this investment? Doesdilution take place?
11. In problem 10, what would the ROE on the investment have tobe if we wanted the price after the offering to be $75 pershare?(Assume the PE ration remains constant.) What is the NPVinvestment? Does any dilution take place?
