The hurdle rate approach in determining the acceptability of projects is _____.
A) an improvement over the risk-adjusted discount rate approach because it provides for an objective basis to determine risk premiums for individual projects
B) a modification of the internal rate of return approach
C) inconsistent with the principle of project risk balancing
D) a method used with the certainty equivalent approach

Question

Quizplus · Accepted Answer

The hurdle rate approach is essentially a modification of the internal rate of return (IRR) approach, where the project's IRR must exceed a specified hurdle rate (or minimum acceptable rate of return) for the project to be considered acceptable. This hurdle rate often reflects the project's risk level and the firm's cost of capital.

The Hurdle Rate Approach in Determining the Acceptability of Projects