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In business and for engineering economics in both industrial engineering and civil engineering practice, the minimum acceptable rate of return, often abbreviated MARR, or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other projects. [1]
Internal rate of return (IRR) is a method of calculating an investment's rate of return. The term internal refers to the fact that the calculation excludes external factors, such as the risk-free rate, inflation, the cost of capital, or financial risk. The method may be applied either ex-post or ex-ante. Applied ex-ante, the IRR is an estimate ...
For the corporation, it is essentially internal rate of return (IRR). [2] CFROI is compared to a hurdle rate to determine if investment/product is performing adequately. The hurdle rate is the total cost of capital for the corporation calculated by a mix of cost of debt financing plus investors' expected return on equity investments.
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Hurdle rate may refer to a minimum acceptable rate of return on a project; a level of return that a hedge fund must exceed before it can charge a performance fee
In the deal-by-deal waterfall, the first deal may return some carried interest if the deal IRR is above one of the hurdle rate. If the GP buys into a low-performing company, the bad performance will need to be compensated by very positive deals before the GP may reach the hurdles.
The internal rate of return (IRR) is the discount rate that gives a net present value (NPV) of zero. It is a widely used measure of investment efficiency. To maximize return, sort projects in order of IRR. Many projects have a simple cash flow structure, with a negative cash flow at the start, and subsequent cash flows are positive.
The NPV is greatly affected by the discount rate. Thus, identifying the proper discount rate – often termed, the project "hurdle rate" [40] – is critical to choosing appropriate projects and investments for the firm. The hurdle rate is the minimum acceptable return on an investment – i.e., the project appropriate discount rate.