Customer Service Chat
Get quote & make Payment
Necessity of risk adjusted hurdle rates for companies, Finance Basics
Discuss the necessity of risk adjusted hurdle rates for companies with diverse lines of business.
Every company invests in new projects based on the expectation of earnings profits. Every investor or lender gives money to a company on the expectation of earning their minimum rate of return. Hurdle rate means the minimum rate of return expected by a company from its capital expenditure projects. Only if the rate of return exceeds the hurdle rate, only then the company should accept the project. As the company can pay back the hurdle rate to the investors and lenders and keep some money for future expansion of projects. This is the rate investors and lenders expect the company to pay to them.
Every project may have its own risk and return. Risk will depend upon the variability of the returns. Higher the risk, higher the hurdle rate. There may be some projects such as developing a new product which may be highly risky, as whole money spend on research and development would go waste if the product is not introduced in the market. However, for real estate companies the risk is not very high. If the building are made properly, people will buy the apartments. For eg - healthcare industry has a high hurdle rate due to the inherent high risk of developing vaccines and drugs. For eg - real estate companies have low hurdle rate due to low risk.
If the company has one consolidated hurdle rate for its diverse line of businesses, then it may not be able to identify projects which are doing well. High returns generated in one industry might offset the low returns generated by another industry. Proper evaluation of the performance of various line of businesses will be difficult.
Posted Date: 9/17/2012 9:32:39 AM | Location : United States
Ask an Expert
Necessity of risk adjusted hurdle rates for companies, Assignment Help, Ask Question on Necessity of risk adjusted hurdle rates for companies, Get Answer, Expert's Help, Necessity of risk adjusted hurdle rates for companies Discussions
Write discussion on Necessity of risk adjusted hurdle rates for companies
Your posts are moderated
Write your message here..
#title.personal finance., monthly income $7,000 Monthly repay $911 what is ...
monthly income $7,000 Monthly repay $911 what is the maximum I qualify for
Determine the approximate payback period, The business plan for a new compa...
The business plan for a new company that has obtained a 5 year lease for operating a local bus service is shown below. Items marked with an asterisk represent continuous cash flow
Restrictive bond or debt covenant, Restrictive Bond or Debt Covenant I...
Restrictive Bond or Debt Covenant In this case the debenture holders will impose strict conditions and terms on the borrower. These restrictions may comprise: a) No disposal
Finance Assignment, I have an assignment for my finance class. The company ...
I have an assignment for my finance class. The company that i have FOR industry analysis is COSTCO WHOLESALES CORP THAT ITS STOCK IS IN DISCOUNT AND VARIETY StORES INDUSTRY. I need
Foreign credit insurance association (fcia), Foreign Credit Insurance Assoc...
Foreign Credit Insurance Association (FCIA) An agent of the Export/Import Bank, FCIA gives exporters with insurance coverage beside both commercial and political risk. The main
What do you mean listing of securities, What do you mean listing of securit...
What do you mean listing of securities? Explain. Listing of Securities: Listing means admission of the securities to dealings on a recognized stock exchange. Securities of an
Advantages and disadvantage of profitability index, Advantages and Disadvan...
Advantages and Disadvantage of Profitability Index Advantages of profitability index a) Simple to understand and utilize. b) The part of NPV in the venture will show t
Getting money, how i can get enough money with out doing any works ???????...
how i can get enough money with out doing any works ????????????
Business finance, shares
Define the term placement - methods of floating new issues, Define the term...
Define the term Placement - Methods of Floating New Issues Under this method, issue houses or brokers purchase the securities outright with the intention of placing them wi
Accounting Assignment Help
Economics Assignment Help
Finance Assignment Help
Statistics Assignment Help
Physics Assignment Help
Chemistry Assignment Help
Math Assignment Help
Biology Assignment Help
English Assignment Help
Management Assignment Help
Engineering Assignment Help
Programming Assignment Help
Computer Science Assignment Help
IT Courses and Help
Why Us ?
~24x7 hrs Support
~Quality of Work
~Time on Delivery
~Privacy of Work
Human Resource Management
Literature Review Writing Help
Follow Us |
T & C
Copyright by ExpertsMind IT Educational Pvt. Ltd.