All 34 Capital Budgeting questions
More in Capital Budgeting
What is the profitability index (PI)? What is the difference between capital and revenue expenditure in budgeting? Why is the initial investment treated as a time-zero cash outflow? What are the advantages and disadvantages of the payback method? What is the difference between mutually exclusive and independent projects? What is the difference between a screening and a preference decision? What is the time value of money and why does it matter in capital budgeting? What is Net Present Value (NPV) and how do you interpret it? What is the Internal Rate of Return (IRR)? What is the discounted payback period?
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Budgeting & Forecasting › Capital Budgeting

What is a hurdle rate?

Beginner

Answer

The hurdle rate is the minimum acceptable rate of return a project must exceed to be approved, usually set at the cost of capital (or higher for riskier projects). Projects with an IRR above the hurdle rate (or positive NPV at that rate) are accepted; those below are rejected.
Real-world example Projects must beat the 12% hurdle rate to be approved for funding.

Common follow-ups: How is the hurdle rate set? | How is it used in decisions?

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All 34 Capital Budgeting questions