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A company's hurdle rate is generally influenced by: Select one: a. whether management uses the net-present-value...

A company's hurdle rate is generally influenced by: Select one: a. whether management uses the net-present-value method or the internal-rate-of-return method. b. project risk. c. Both the cost of capital and project risk. d. the cost of capital. e. the firm's depreciable assets.

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Answer #1

Answer:

Option C: Both cost of capital and project risk

Explanation:

Hurdle rate refers to the minimum rate of return that is required on an investment.

The hurdle rate is calculated on the basis of the cost of capital (also known as WACC), and then we adjust the project risk premium to it.

For example: If the company has a WACC of 8%, and a risk premium of 4%, the Hurdle rate will be 8% + 4% = 12%.

The firm policy of NPV, or IRR, or depreciable assets does not affect the Hurdle Rate.

Hence,

Option 'C' is correct and rest all are incorrect.

In case of any doubt, please feel free to comment.

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