Store-It owns and operates self-storage units across the country. The ﬁrm is well established and has a cost of capital of 9 percent. Stop n Drive operates several stations which supply bread and
Milk along with gasoline, diesel, and kerosene fuels. Stop n Drive's cost of capital is 13 percent. Both
Companies are considering opening a chain of bakeries which would supply fresh baked goods for
Individual consumers. The internal rate of return on these bakeries is 11.5 percent. Which ﬁrm or
ﬁrms, if either, should open the bakery outlets?

Question

Quizplus · Accepted Answer

The information given only provides the cost of capital for both companies and the internal rate of return for the bakery outlets. It does not provide any information on the expected cash flows or profitability of the bakery outlets for either company. Without this information, it is impossible to determine whether opening the bakery outlets would be a profitable investment for either company. Therefore, the answer is E, cannot be determined from the information given.

Store-It Owns and Operates Self-Storage Units Across the Country