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The "Hurdle Rate" or the "Discount Rate" represented by the "Weighted Average Cost of Capital" (WACC)
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The "Hurdle Rate" or the "Discount Rate" represented by the "Weighted Average Cost of Capital" (WACC) plays an important role in deciding the Net Present Value (NPV) of a project. Calculating the NPV is an important task since it allows the decision maker to make sound investment decisions; if the NPV of a project is positive, then the project is profitable and should be taken, but if the project has a negative NPV, then the project should not be considered. When evaluating a project, the decision maker is making an investment decision with the goal of maximizing shareholders' wealth. But the investment money does not come from one source, or to put it in another way, the financial manager might have money to invest, but this money could be available from sale of stock, sale of bonds, suppliers' accounts payable, the firm's retained earnings, as well as bank loans. Each...
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