Asked by Jamie Sulley on Jun 15, 2024
Verified
A company's required rate of return,typically its cost of capital is called the:
A) Internal rate of return.
B) Average rate of return.
C) Hurdle rate.
D) Maximum rate.
E) Payback rate.
Required Rate
The minimum return or yield that investors expect to receive on an investment, taking into account the risk level and market conditions.
Cost of Capital
The rate of return a company must earn on its investments to satisfy its investors or lenders.
Hurdle Rate
The minimum rate of return that an investment project must generate before it is considered viable or attractive for investment.
- Comprehend the importance of achieving a hurdle rate that exceeds the interest rate for projects funded with borrowed money.
Verified Answer
TH
Theresa HickmanJun 19, 2024
Final Answer :
C
Explanation :
The required rate of return a company must earn on its project investments, typically referred to as its cost of capital, is also known as the hurdle rate. This is the minimum rate of return that the company must achieve in order for the project to be considered worthwhile and to create value for the company's shareholders.
Learning Objectives
- Comprehend the importance of achieving a hurdle rate that exceeds the interest rate for projects funded with borrowed money.