Hurdle Rate

A hurdle rate is the minimum return a company requires before it will approve a project or investment. Many companies set it at their cost of capital, sometimes with a cushion added for riskier projects.

For a project funded by the whole company, the weighted average cost of capital is the usual starting point, about 8.5% in this site's example. For an equity investor, or a project valued on equity cash flows, the 11% cost of equity is the bar. A project expected to return 9% clears the first and misses the second.

A small private company might set its hurdle closer to a build-up result such as 15%. See what a good cost of equity is, the required rate of return entry, and the FAQ on the required rate of return.