Question
Consider the scenario given in the previous problem involving HCA evaluating the feasibility of building a new hospital. In the previous problem, you estimated the
Consider the scenario given in the previous problem involving HCA evaluating the feasibility of building a new hospital. In the previous problem, you estimated the required rate of return on the equity investment of the new hospital. HCA's analysts have estimated that the new hospital's beta (1.1.) is higher than the 0.8 market beta of the company's average project. Furthermore, the financial forecasts indicate that the expected rate of return on the equity portion of the hospital is 20%. Is building the new hospital in the best interest of HCA's shareholders? Choose the best response.
a. Yes, because the expected rate of return is higher than the required rate of return.
b. No, because the expected rate of return is lower than the required rate of return.
c. No, because the market beta for the hospital project is higher than the market beta of the companys average project.
d. Both b and c are correct
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