The J. Miles Corp. has 25 million shares outstanding with a share price of $20 per share.
Question:
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 the 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?
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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a Miles equity can be viewed as a call option on Miles assets with a strike price of 900 fiv...View the full answer
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