Evaluating the feasibility of building new hospital

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Reference no: EM13947286

Assume that Mountain view Management Associates (MMA) is evaluating the feasibility of building a new hospital in an area not currently served by the company. The company’s analysts estimate a market beta for the hospital project of 1.2, which is somewhat higher than the 0.9 market beta of the company’s average project. Financial forecasts for the new hospital indicate an expected rate of return on the equity portion of the investment of 18 percent. If the risk-free rate, RF, is 6 percent and the required rate of return on the market, R(Rm ), is 11 percent, is the new hospital in the best interest of MMA’s shareholders? Explain your answer.

Reference no: EM13947286

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