Hopewell Enterprises is a globally diverse conglomerate with interests in diverse retail, medical, and technology sectors. The firm has a beta of 1.4 and a cost of capital of 13.8 percent. Medical Associates is a specialty firm in the medical equipment field and has a beta of 1.6 and a cost of capital of 15.7 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. The project will require an investment from each investor of $6.8 million. The project is expected to return $11.5 million to each investor in one lump sum payment at the end of year 4. Which firm or firms, if either, should accept this project? A. Only Hopewell Enterprises should accept this investment.B. Only Medical Associates should accept this investment.C. Both firms should reject this investment.D. Both firms should accept this investment.E. The answer cannot be determined without additional information.
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