Hurdle rate
Hurdle rate is a term used in finance to refer to the minimum rate of return that an investor expects before they invest in a project or business. It is also known as the required rate of return or target rate of return.
The hurdle rate is used to evaluate the feasibility of a project or investment opportunity. If the potential return on investment is lower than the hurdle rate, the investor may choose not to invest in the project.
For example, if an investor has a hurdle rate of 10% and is considering investing in a new business venture that is projected to have a return of 8%, the investor may decide not to invest in the project due to the lower than expected return.
On the other hand, if the projected return on investment is 12%, which is higher than the hurdle rate, the investor may choose to invest in the project.
It is important for investors to carefully consider their hurdle rate when evaluating investment opportunities to ensure that they are making sound financial decisions.
Examples of hurdle rate:
- An individual investor may have a hurdle rate of 7% for investing in stocks.
- A venture capitalist may have a hurdle rate of 20% for investing in startups.
- A company may have a hurdle rate of 12% for approving new projects.
For more information on hurdle rate, you can visit Wikipedia.