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

question 5

Multiple Choice

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 firm or firms,if either,should become involved in the new projects?

• A)Lester's only
• B)Med, Inc. only
• C)Both Lester's and Med, Inc.
• D)Neither Lester's nor Med, Inc.
• E)The answer cannot be determined based on the information provided.

---

Definitions:

Random Variable

A variable whose values depend on outcomes of a random phenomenon.

Bernoulli Distribution

A probability distribution that takes two possible outcomes, 1 (success) with probability p, and 0 (failure) with probability 1-p.

Survey Question

A question used in a survey designed to collect data on the opinions, behaviors, or characteristics of respondents.

Probability Density Function

A function that describes the relative likelihood for a continuous random variable to take on a given value.