Suppose the Apex Health has four different projects. These four are listed below along with the amount of capital invested, the corporate beta and the market beta.
Project Amount Invested Corporate Beta Market Beta
Walk in Clinic $500,000 1.5 1.1
MRI Facility $2,000,000 1.2 1.5
Clinical Laboratory $1,500,000 0.9 0.8
X-Ray Laboratory $1,000,000 0.5 1.0
Total Invested $5,000,000
A. Why do the corporate and market betas differ for the same project?
B. What is the overall corporate beta of the Apex Health System? Is this calculated beta consistent with corporate risk theory?
C. What is the overall market beta of Apex Health System?
D. How does the riskiness of Apex’s stock compare with the riskiness of the 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 risk stock?