Chapter 26, Problem 9DQ

To determine

Introduction:

Hurdle Rate:

It refers to the minimum rate of returns expected by the company from the proposed investment of any project. It is also known as cut off rate or target rate.Hurdle rate is the measurement factor for the company to decide whether to invest in a project or not based on its degree with internal rate of return. The project is said to be potential only if the internal rate of return is equal or greater than the hurdle rate that encourages investment. The cost of capital of the company is the most important factor considered for estimating the hurdle rate.

To state:

The investment to be considered for acceptance or not if a potential investment rate of return is above the hurdle rate of the company.