DEFINITION of 'Hurdle Rate'
The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, the riskier the project, the higher the hurdle rate.
In the hedge fund world, hurdle rate refers to the rate of return that the fund manager must beat before collecting incentive fees.
INVESTOPEDIA EXPLAINS 'Hurdle Rate'
In capital budgeting, projects are evaluated either by discounting future cash flows to the present by the hurdle rate, so as to ascertain the net present value of the project, or by computing the internal rate of return (IRR) on the project and comparing this to the hurdle rate. If the IRR exceeds the hurdle rate, the project would most likely go ahead.
For example, a company with a hurdle rate of 10% for acceptable projects, would most likely accept a project if it has an internal rate of return of 14% and does not have a significantly higher degree of risk. Alternately, discounting the future cash flows of this project by the hurdle rate of 10% would lead to a large and positive net present value, which would also lead to the project's acceptance.

IRR Rule
A measure for evaluating whether to proceed with a project or ... 
Internal Rate Of Return  IRR
The discount rate often used in capital budgeting that makes ... 
Discounted Cash Flow  DCF
A valuation method used to estimate the attractiveness of an ... 
Capital Budgeting
The process in which a business determines whether projects such ... 
Rate Of Return
The gain or loss on an investment over a specified period, expressed ... 
Required Rate Of Return  RRR
The minimum annual percentage earned by an investment that will ...

Investing
What is the difference between stated annual return and effective annual return?
Essentially, the effective annual return accounts for intrayear compounding, and the stated annual return does not. The difference between these two measures is best illustrated with an example. ... 
Forex Education
How To Calculate Required Rate Of Return
The required rate of return is used by investors and corporations to evaluate investments. Find out how to calculate it. 
Fundamental Analysis
Internal Rate Of Return: An Inside Look
Use this method to choose which project or investment is right for you. 
Budgeting
Use ROA To Gauge A Company's Profits
Do you rely too heavily on ROE? Consider using return on assets for a more complete picture. 
Investing
Making Sense Of Market Anomalies
Stocks sometimes thwart the efficient market theory by showing some very unusual patterns. 
Budgeting
What's the difference between net present value and internal rate of return? How are they used?
Both of these measurements are primarily used in capital budgeting, the process by which companies determine whether a new investment or expansion opportunity is worthwhile. Given an investment ... 
Investing
How does the required rate of return affect the price of a stock, in terms of the Gordon growth model?
First, a quick review: the required rate of return is defined as the return, expressed as a percentage, that an investor needs to receive on an investment in order to purchase an underlying security. ... 
Budgeting
Which is a better measure for capital budgeting, IRR or NPV?
In capital budgeting, there are a number of different approaches that can be used to evaluate any given project, and each approach has its own distinct advantages and disadvantages.All other ... 
Fundamental Analysis
What does a high weighted average cost of capital (WACC) signify?
Find out what it means for a company to have a relatively high weighted average cost of capital, or WACC, and why this is important to lenders and investors. 
Mutual Funds & ETFs
How do hedge funds use short selling?
Learn how hedge funds use short selling to profit from stocks that are falling in price. Explore different analytical techniques hedge funds employ to find investments.