Asked by Mlebinge Endani on May 26, 2024
Verified
A hurdle rate is generally based on an estimate of the ___________________ of acquiring capital.
A) weighted average cost
B) average cost
C) total cost
D) investment opportunity rate
Hurdle Rate
The minimum rate of return on a project or investment required by a manager or investor.
Weighted Average Cost
A method of calculating the total cost of goods available for sale, considering the weighted average of all goods.
- Understand the significance of capital budgeting within the context of long-term financial planning.
Verified Answer
GB
gizeal bahatiMay 29, 2024
Final Answer :
A
Explanation :
A hurdle rate is typically based on the weighted average cost of capital (WACC), which is the average cost a company pays to acquire all its capital, including debt and equity. By using the WACC as the hurdle rate, a company can ensure that any investment it makes generates returns that are higher than the cost of the capital used to make the investment. B, C, and D are not accurate choices for the basis of determining a hurdle rate.
Learning Objectives
- Understand the significance of capital budgeting within the context of long-term financial planning.