The term hurdle rate is often used in the context of project evaluation and is sometimes used to refer to the risk-adjusted discount rate—i.e., the required rate of return on a project with a given level of risk. The risk adjusted discount rate refers to the cost of capital or opportunity cost of raising money to finance an in-vestment, and hurdle rates are generally higher than the cost of capital. Why might a firm use hurdle rates that exceed its cost of capital?
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