Understanding Hurdle Rates: From Macro Economics to Company-Specific Cost of Capital

This article examines how hurdle rates (required rates of return) are determined for business investment and valuation decisions. It breaks down the components of cost of capital including riskfree rates, equity risk premiums, default spreads, and company-specific factors like relative equity risk, default risk, and operating geographies. The analysis covers estimation methodologies for approximately 48,000 firms in 2025.