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Define the relationship between hurdle rate and IRR and NPV.

Define the relationship between hurdle rate and IRR and NPV.

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Answer #1

The hurdle rate is the minimum rate that the company or manager expects to earn when investing in a project.

The IRR  is the interest rate at which the net present value (NPV) of all cash flows, both positive and negative, from a project is equal to zero.

In the NPV analysis, hurdle rate is the rate used to discount future net cash flows of the project. If the actual return on the project is higher than the hurdle rate, the net present value is positive and the project is accepted.

In internal rate of return analysis, if IRR is greater than the hurdle rate, the project is accepted otherwise it is rejected.

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