What is the minimum profitability index required

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Question - The J. Miles Corp. has 25 million shares outstanding with a share price of $20 per share. Miles also has outstanding? zero-coupon debt with a 5?-year ?maturity, a face value of $900 ?million, and a yield to maturity of 9%. The? risk-free interest rate is 5%.

a. What is the implied volatility of? Miles' assets?

b. What is the minimum profitability index required for equity holders to gain by funding a new investment that does not change the volatility of? Miles' assets?

c. Suppose Miles is considering investing cash on hand in a new investment that will increase the volatility of its assets by 10%. What is the minimum NPV such that this investment will increase the value of? Miles' shares?

Reference no: EM132923764

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