MANAGEMENT

Detailed explanation-1: -A hurdle rate is the minimum rate of return required on a project or investment. Hurdle rates give companies insight into whether they should pursue a specific project. Riskier projects generally have a higher hurdle rate, while those with lower rates come with lower risk.

Detailed explanation-2: -The hurdle rate is the required rate of return in investment appraisal above which an investment project is worth pursuing. We know when computing a project’s NPV (net present value) that if the discount rate exceeds the project’s IRR (internal rate of return) then we should not proceed with the project.

Detailed explanation-3: -The hurdle rate, also called the minimum acceptable rate of return, is the lowest rate of return that the project must earn in order to offset the costs of the investment.

Detailed explanation-4: -The minimum return to investors to be achieved before a carry is permitted. A hurdle rate of 10% means that the private equity fund needs to achieve a return of at least 10% per annum before the profits are shared according to the carried interest arrangement.