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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]
Hurdle rate is a term describing the minimum return an investor requires before deciding to buy a security or make another type of investment. It is expressed as a percentag. That is, if an ...
The deal-by-deal waterfall distributes carried interest faster. With a European waterfall, the first distributed amounts are used to return the capital called by other deals. 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.
Second, returns are paid to investors other than the manager, up to a certain previously agreed rate of return (the "hurdle rate" or "preferred return"). [8] The customary hurdle rate is 7% to 9% per annum. [7] [4] Third, returns are paid to the manager until it has received a rate of return equal to the hurdle rate (the "catch-up"). [7]
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.
The hurdle rate should reflect the riskiness of the investment, typically measured by volatility of cash flows, and must take into account the project-relevant financing mix. [40] Managers use models such as the CAPM or the APT to estimate a discount rate appropriate for a particular project, and use the weighted average cost of capital (WACC ...
A hurdle, in the context of a performance fee, is a level of return that the fund must beat before it can charge a performance fee. It may be a set percentage or it may be referenced to an index . The index would typically be either LIBOR (or an equivalent) or an index reflecting the underlying market in which the fund is investing.
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