[pmars87]

Hi, I was wondering if anyone could explain to me why a company would not accept a project that yields an IRR = the hurdle rate? Becker states they only accept if it is above the hurdle rate. Thanks in advance!

[Anonymous]

pmars87,

This page has some info that could be helpfull, https://www.youtube.com/user/MBAbullshitDotCom

[Anonymous]

Hi pmars87,

Here is my interpretation for it (i am taking BEC in 2 wks).

When looking at NPV, Payback and IRR; the first 2 ones are a decision where mgmt asks:

1. Is it NPV positive?

2. How much time for payback? (yrs + months)

In both situations the “hurdle rate” is sort of a “secondary focus” (although it is the main driver for a Yes/No answer).

The main focus for mgmt are the 2 questions listed above….. In the case of IRR, its all about “the rate”. The mgmt responsible will state a threshold that could be:

IRR greater then XX%

or IRR that is at least XX%

Hope it helps 🙂

[Anonymous]

Also, IRR assumes that a company is able to invest the cash flow from an investment and continuously receive the same return as the IRR percentage. You generally want IRR to exceed your cost of capital as that may not be a realistic assumption.

[Author]

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