Question
Reply to this what can i be different? Cost of capital means the opportunity cost of investment in a particular project suppose you have two
Reply to this what can i be different?
Cost of capital means the opportunity cost of investment in a particular project suppose you have two projects in hand one can provide 12% return and another can provide 11% with the same risk than if you choose 12% return providing project than your opportunity cost of capital is 11%.
Relationship between hurdle rate and cost of capital:
The hurdle rate is the benchmark rate of return set by an investor. The hurdle rate is always higher than the Cost of capital because another meaning of cost of capital is a cost at which we have borrowed funds. So, we must get a higher return than the cost of capital. if a firm sets hurdle rate low many unnecessary and unprofitable projects may get accepted and if they set it much higher than it may reject some good projects so hurdle rate should be optimum by considering the cost of Capital of organization. The hurdle rate also depends upon the inflation rate in an economy because as the inflation rises you need more return on your Investment it gives raise to your hurdle rate.
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