hurdle rate
capital rate
return rate
budgeting rate
Answer is Right!
Answer is Wrong!
The correct answer is: A. hurdle rate.
A hurdle rate is the minimum rate of return that a project must generate in order to be considered worthwhile. It is also known as the discount rate, the cutoff rate, or the required rate of return. The hurdle rate is used to compare the profitability of different projects and to determine which projects should be funded.
In capital budgeting, two projects who have cost of capital as 12% is classified as hurdle rate. This is because the cost of capital is the minimum rate of return that a project must generate in order to be considered worthwhile. If a project does not generate at least a 12% return, then it is not worth investing in.
The other options are incorrect because:
- Option B, capital rate, is not a term that is used in capital budgeting.
- Option C, return rate, is the rate of return that a project generates. It is not the same as the hurdle rate.
- Option D, budgeting rate, is the rate of return that is used to calculate the budget for a project. It is not the same as the hurdle rate.