Assume that Health Management Associates
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Assume that Health Management Associates
Assume that Health Management Associates (HMA) 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 1.1, which is somewhat higher than the 0.8 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 20 percent. If the risk-free rate, RF, is 7 percent and the required rate of return on the market, R(Rm), is 12 percent, is the hospital in the best interest of HMA’s shareholder’s? Explain your answer.
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