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..
Constant payout ratio, Constant payout ratio 1. This is whereas the fi...
Constant payout ratio 1. This is whereas the firm will pay a fixed dividend rate as like 40 percent of earnings. The DPS would consequently fluctuate as the earnings per share
Find the costs of financing, Find the costs of financing for two schedules ...
Find the costs of financing for two schedules of monthly payments on a 25-year mortgage. The cash value of the house today is $500,000. You are paying monthly at a fixed rate of 6%
Cbk - monetary policy, CBK - Monetary Policy The money supply in the e...
CBK - Monetary Policy The money supply in the economy has a main effect on both the rate of inflation and the level of economic activity. The level of money supply is controll
Types of stock markets, Types of Stock Markets 1. Over the Counter or...
Types of Stock Markets 1. Over the Counter or OTC and Organised Exchange market This is whereas the selling and buying of securities is done through sellers and buyers ar
Real estate, A home buyer lists her home at a 7% commission rate and wants ...
A home buyer lists her home at a 7% commission rate and wants to net 45,000 after paying the mortgage balance of 68,000 and the broker''s commission. To the nearest dollar, what sh
Calculate the ex-right stock price, DIY Inc. plans to raise $200,000 with a...
DIY Inc. plans to raise $200,000 with a right offering. The current stock price is $100 and there are 80,000 shares outstanding. a. If DIY sets the subscription price to be $80
What is a treasury bill, What is a Treasury bill? How risky is it? Trea...
What is a Treasury bill? How risky is it? Treasury bills are short-term debt instruments granted by the U.S. Treasury which are sold at a discount and pay face value at maturit
Calculate the price of a non-zero coupon bond, Question: A non-zero cou...
Question: A non-zero coupon bond carries a coupon rate of 8 percent and has 9 years until maturity. It sells at a yield to maturity of 6 percent. The par value of the bond is
Risk-return trade-off, Risk-Return Trade-Off Most financial decisions ...
Risk-Return Trade-Off Most financial decisions comprise alternative courses of action. The choices have different returns and risk. As like example, must we buy a replacement
Price earnings ratio, Price Earnings Ratio Price earnings (P/E) or rat...
Price Earnings Ratio Price earnings (P/E) or ratio = Market price per share (MPS)/Earnings per share OR = Market value of equity /Ea
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
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.