The hurdle rate is a key component of investing for businesses, representing the rate of return an investment has to earn to be a good investment. However, it is defined in different ways, ranging from being a cost of funding to an opportunity cost to a reflection of historical returns. In this session, I look at the different definitions and argue that it is best described as an opportunity cost, representing the return you would make on an investment with equivalent risk. I then look at the three determinants of a project’s hurdle rate, the business it is in, the geographies it operates from and the currency that you do your analysis in, and examine what those differences look like at the start of 2021.
Slides:
Blog POST:
Spreadsheets:
1. Cost of capital, by industry (US):
2. Cost of capital, by industry (Global):
3. Equity Risk Premiums, by country:
4. Risk free rates by currency:

source