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Salt-Bae is a food company which just came across an average-risk investment project that offers...

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Accounting

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?

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