Elijay Building Supplies Operates Several Retail Outlets Which Carry Construction

Elijay Building Supplies operates several retail outlets which carry construction and related supplies for the typical homeowner. Elijay has a cost of capital of 12 percent. Because three of its outlets are
Producing returns of 9 percent, Elijay is trying to sell those stores. Barkley's Markets is a chain of
Fresh-cut meat stores. Because its business is well established and stable, Barkley's has a cost of
Capital of 8 percent. Barkley's is considering purchasing the three outlets from Elijay's because they
Are located in the same geographic area as some of Barkley's stores. Should Elijay's purchase these
Stores and why or why not?

A) No; because Barkley's is in a different line of business.
B) No; because the return will be less than the firm's cost of capital for the project.
C) Yes; because the stores earn a return in excess of Barkley's cost of capital.
D) Yes; because the stores will diversify Elijay's operations.
E) Yes; because Elijay's cost of capital is too high.