Hurdle Rate
The hurdle rate is the minimum rate of return required on an investment.
Also called the benchmark and the cut off rate, it must be met in order for a company to have covered all the costs associated with a project and to have made some profit.
If the rate of return is below the specified hurdle rate, steps must be made to increase the return otherwise the project should be abandoned.
A hurdle rate that is too high can result in negative decisions being made. For example, a company may turn down otherwise profitable projects as they will not meet the rate of return required.
