Choose the Hurdle Rate Before the Story
Select a defensible hurdle rate based on project risk rather than advocacy pressure.
The move: choose the hurdle before you look at the answer. Discount rates discipline optimism. A routine replacement project, a geographic expansion, and a speculative platform bet should not automatically share one rate just because they sit inside the same company. The rate should reflect the risk of the cash flows being valued, not the charisma of the sponsor or the average risk of unrelated assets. Start with the capital base Company WACC is useful when the project has similar operating risk and financing mix to the existing business. Adjust for project risk When cash flows depend on a new…
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