What is new facility in best interest of everly shareholders

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Problem 1: Assume that Everly Healthcare, a provider of skilled nursing facility services, is evaluating the feasibility of building a new facility to replace one of its aging facilities in small, low-volume market. The company's analysts estimate a market beta for the project of 0.8, which is somewhat lower than the 0.91 market beta of the company's average project. The corporate beta fo r the project is estimated to be 0.5. Financial forecasts for the new facility indicate an expected rate of return on the equity portion of the investment of 7 percent. If the risk-free rate, RF, is 2 percent and the required rate of return on the market, R(RM), is 10 percent, is the new facility in the best interest of Everly's shareholders? Explain your answer.

Reference no: EM132939339

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