When evaluating investment opportunities for a company, what is the best discount rate to use?

Question

Quizplus · Accepted Answer

The best discount rate to use when evaluating investment opportunities for a company is the company's hurdle rate. The hurdle rate is the minimum return that a project must achieve in order to be deemed acceptable and is based on the company's cost of capital and risk tolerance. It takes into consideration the company's unique financial situation and objectives, and provides a consistent basis for comparison between investment opportunities. Current interest rates or published bank rates may be used in determining the cost of capital, but they do not take into account the company's specific circumstances, and the company's ROCE from the previous period or the interest rate for the company's next best opportunity may not be relevant to the investment being evaluated.

When Evaluating Investment Opportunities for a Company, What Is the Best