Salt-Bae is a food company which just came across an average-risk investment project that offers a rate of return of 8%.
Posted: Wed Jul 06, 2022 6:42 pm
Salt-Bae is a food company which just came across anaverage-risk investment project that offers a rate of return of 8%.This is less than the company's normal rate of return, but one ofthe firm's directors notes that the company can easily borrow therequired investment at 1%. He suggests that if the bank lends themmoney at 1%, then their cost of capital must be 1%. And theproject's return is higher than the cost of capital, so they moveahead. How would you respond?