Discount rate in capital budgeting called hurdle rate
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lewes
Apprentice
Joined: 11 May 2007
Posts: 6
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 Posted: 07/27/08 - 06:58 Post subject: |
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| It seems to me that I should have chosen some other subject other than finances for my second term. Now I’m faced with the problem of not being able to get ready for the upcoming test. But I have decided to take the bull by the horns and try to do my best. What can you tell me about hurdle rate? Is it a discount rate in capital budgeting? |
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hymie
Apprentice
Joined: 04 Aug 2004
Posts: 9
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| Posted: 08/26/08 - 01:03 Post subject: |
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| Well, we can say that in order for some capital investments there has to be some kind of discount rate. Actually, this is a requirement according to which there has to be some minimal return rate which a company has to be able to pay if it wants to get some project or investment. I’m not an expert in this field, quite the opposite, but I have heard that hurdle rate can sometimes be an obstacle for some potential projects because they could be turned down because of this rule. It can also be a problem because companies may incline to make only short-term projects instead of long-term ones. Still, I think that there is a way to overcome all those shortcomings. |
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