Chapter $5-$ Financial Risk and Required Return

PROBLEM $7$

$6$ Assume that HCA is evaluating the feasibility of building a new hospital in an area not currently $7$ served by the company. The company's analysts estimate a market beta for the hospital project of

$81\mathrm{.}1,$ which is somewhat higher than the $0\mathrm{.}8$ market beta of the company's average project.

$9$ Financial forecasts for the new hospital indicate an expected rate of return on the equity portion $10$ of the imvestment of $20$ percent. If the risk free rate, RF$,$ is $7$ percent and the required rate of $11$ return on the market, $R(Rm),$ is $12$ percent, is the new hospital in the best futerest of HCA's $12$ stareholders? Explain your answer.