Asked by refan waleed on Jun 14, 2024
Verified
In using a capital budgeting method that takes the time value of money into consideration,management must consider a hurdle rate in making its decisions.What is a hurdle rate? What factors does management have to consider in selecting a hurdle rate?
Hurdle Rate
The minimum acceptable rate of return on an investment that a manager or investor expects to achieve.
Time Value of Money
The idea that having money in the present is more valuable than having the same sum in the future because of what it could potentially earn.
- Examine the elements critical to making capital budgeting choices, including cash flow considerations, the concept of the time value of money, and the hurdle rate.
- Determine the impact of the time value of money on capital budgeting methodologies.
Verified Answer
IE
Idris ElgabalawyJun 20, 2024
Final Answer :
A hurdle rate is a company's required,or minimum acceptable,rate of return.It is typically based on a company's cost of capital,which is an average rate the company must pay to its long-term creditors and shareholders.
Learning Objectives
- Examine the elements critical to making capital budgeting choices, including cash flow considerations, the concept of the time value of money, and the hurdle rate.
- Determine the impact of the time value of money on capital budgeting methodologies.
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