Data Update 4 for 2021: The Hurdle Rate Question

This article examines hurdle rates—the minimum return a business should accept on an investment given its risk—and explores three approaches to computing them: cost of raising capital, opportunity cost, and capital-constrained clearing rates. The author argues that hurdle rates should vary by business risk profile, geography, and currency, and that in early 2021 historically low hurdle rates require companies to adjust their cost of capital expectations and invest more time in cash flow estimation than discount rate refinement.