Salt-Bae is a food company which just came across an average-risk investment project that offers a rate of return of 8%. This is less than the company's normal rate of return, but one of the firm's directors notes that the company can easily borrow the required investment at 1%. He suggests that if the bank lends them money at 1%, then their cost of capital must be 1%. And the project's return is higher than the cost of capital, so they move ahead. How would you respond? (no more than 5-10 lines answer are needed)
Salt-Bae is a food company which just came across an average-risk investment project that offers a rate of return of 8%. This is less than the company's normal rate of return, but one of the firm's directors notes that the company can easily borrow the required investment at 1%. He suggests that if the bank lends them money at 1%, then their cost of capital must be 1%. And the project's return is higher than the cost of capital, so they move ahead. How would you respond? (no more than 5-10 lines answer are needed)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Salt-Bae is a food company which just came across an average-risk investment project that offers a
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education