Lester's is a globally diverse company with multiple divisions and a cost of capital of 15.8 percent.Med, Inc., is a specialty firm in the medical equipment field with a cost of capital of 13.7 percent.With the aging of America, both firms recognize the opportunities that exist in the medical field and are considering expansion in this area.At present, there is an opportunity for multiple firms to be involved in a new medical devices project.Each project will require an initial investment of $8.4 million with annual returns of $2.2 million per year for seven years.Which company(ies), if either, should become involved in the new projects?

Question

Quizplus · Accepted Answer

Both Lester's and Med, Inc. have a cost of capital that is less than the annual return of the project, so both companies should become involved in the new projects.

Lester's Is a Globally Diverse Company with Multiple Divisions and a Cost