Hurdle rates depend on the perceived riskiness of divisions or projects and are used to evaluate different types of potential investments.

Question

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Hurdle rates are used to evaluate different types of potential investments by considering the perceived riskiness of divisions or projects. It helps in assessing whether the investment can potentially generate returns that exceed its cost of capital. Companies use hurdle rates to prioritize and allocate resources among different divisions/projects, and make decisions about whether to invest in them or not.

Hurdle Rates Depend on the Perceived Riskiness of Divisions or Projects