The CEO of Easygo Ltd measured the profitability of a project as the difference between its 15% return and the interest rate on the loan used to finance it. Why is this approach wrong?

Question

Answer

Because interest rates should never be considered in project evaluation

Answer

Because the CEO should have used the bank overdraft rate

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Because the return should be compared with the cost of equity only

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Because the return should be compared with the WACC, owing to the pooling of funds principle

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The CEO of Easygo Ltd measured the profitability of a project as the difference ...

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