For projects financed from borrowed funds,the hurdle rate must exceed the interest rate paid on the borrowed funds.

Question

Quizplus · Accepted Answer

This is because if the hurdle rate (required rate of return) is less than the interest rate paid on the borrowed funds, then the project will not generate enough returns to cover the borrowed funds and still earn a profit. Therefore, the hurdle rate must be set higher than the interest rate to ensure that the project can generate enough returns to cover the borrowed funds and earn a profit.

For Projects Financed from Borrowed Funds,the Hurdle Rate Must Exceed