British quince comes across an average-risk investment proje

Reference no: EM13735810

British Quince comes across an average-risk investment project that offers a rate of return of 9.5%. This is less than the company's normal rate of return, but one of Quince's directors notes that the company can easily borrow the required investment at 7%. "It's simple", he says. "If the bank lends us money at 7%, then our cost of capital must be 7%. The project's return is higher than the cost of capital, so let's move ahead". How would you respond?

Reference no: EM13735810

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