Base-Year Analysis

Finance allah shmoop shmoop what is ah hurdle rate Well

a hurdle rate refers to the investment return minimum that

an investment project requires for it to be worth taking

the risk and effort to do it in the first

place All right what does that really mean Well you're

the new ceo of baby's first chainsaw inc a project

manager present to you the opportunity to open a new

line of business called grand pas last chain saw going

into that business will cost you one hundred million box

of initial investment in large print labeling walker accessible attachments

jittery hand stabilizers and some extra denture cream You as

ceo are looking at eight other projects you can afford

to do on ly one and the best of the

eight other projects is a similar product called the unhinged

midlife crisis chainsaw which has been garnering a lot of

early interest That project has return rate of fourteen percent

so the project manager presenting grandpas last chainsaw now has

a hurdle rate that must be above the highest last

hurdle or fourteen percent fourteen percent annualized return got it

and that's as presented by the project manager pitching investment

in the mid life crisis model meaning they think it'll

return fourteen percent a year on the investment Got it

Whichever of those eight competitive project managers presents the most

believable projections for sales and profits that exceed the others

well they'll soon become king of the family chainsaw market

And the ones who don't well let's just say they 00:01:38.855 --> [endTime] use a few extra bodies over in product development