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Finance
Hurdle Rate
The minimum rate of return a company or investor requires before accepting a new project or investment.
The hurdle rate is usually based on the company's cost of capital plus a risk premium. It is a key number in capital budgeting and NPV calculations. Projects that clear the hurdle rate are expected to create value for shareholders.
It's the height of the bar you must jump over before the project is even considered worthwhile.
Real world: A company sets a hurdle rate of 12%. Any new factory or marketing campaign must show it will earn more than 12% return or it gets rejected, even if it looks profitable on paper.
💡 The hurdle rate stops the company from wasting money on mediocre ideas.