I posted the following question:

"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?"

And received this answer:

"

This is definitely not a smart thought. The organization is basically getting cash at 1% and putting it in a venture that offers an arrival of just 8%. This is a negative profit from speculation and is definitely not a decent utilization of the organization's cash.

Clarification: The expense of capital incorporates the loan cost on the advance used to fund the venture, as well as some other charges related with the credit.

The profit from speculation (ROI) is the level of the first venture that is acquired back from the task.

For this situation, the organization is getting cash at a 1% loan fee and putting it in an undertaking that offers an arrival of just 8%. This implies that the organization will really lose cash on the speculation, since the expense of supporting the venture (the 1% loan fee) is higher than the profit from venture (the 8% return). This is definitely not a decent utilization of the organization's cash, and the organization shouldn't continue with the venture."

But I do not understand. Can someone please clarify this further? Perhaps with some calculations or WACC