10.6

Suppose
that Apex Health Services has four different projects. These projects are
listed...

Question

10.6

Suppose
that Apex Health Services has four different projects. These projects are
listed below, along with the amount of capital invested and estimated corporate
and market betas:

Project
 
 Amount Invested
 
 Corporate Beta
 
 Market Beta
 
 Walk - In Clinic
 
 500000
 
 1.5
 
 1.1
 
 MRI Facility
 
 2000000
 
 1.2
 
 1.5
 
 Clinical Laboratory
 
 1500000
 
 0.9
 
 0.8
 
 X-ray Laboratory
 
 1000000
 
 0.5
 
 1
 
 $5000000
 ========

a.
Why do the corporate and
market betas differ for the same project?
b.
What is the overall corporate
beta of Apex Health Services? Is the calculated beta consistent with the
corporate risk theory?
c.
What is the overall market
beta of Apex Health Services?
d. How does the riskiness of Apex’s stock
compare with the riskiness of an average stock?
e. Would stock investors require a rate of
return on Apex that is greater than, less than, or the same as the return on an
average stock?

Robert · Accepted Answer

Solution:- 
a. Why do the corporate and market betas differ for the same project? 
The difference in corporate and market beta is due to the macro level factors such as government 
policies, global activities, market condition, issues in other industries both inside and outside the 
country etc. Due to these macro level factors the market beta and the corporate beta differs with each 
other. 
b. What is the overall corporate beta of Apex Health Services? Is the calculated beta consistent 
with the corporate risk theory? 
Project Investment (a) Corporate Beta (b) a*b
Walk - In Clinic  $                           500,000  1.

10.6 Suppose that Apex Health Services has four different projects. These projects are listed below, along with the amount of capital invested and estimated corporate and market betas: Project Amount...

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Project	Amount Invested	Corporate Beta	Market Beta
Walk - In Clinic	500000	1.5	1.1
MRI Facility	2000000	1.2	1.5
Clinical Laboratory	1500000	0.9	0.8
X-ray Laboratory	1000000	0.5	1
$5000000 ========