Hurdle Rate Calculator

Cost of Capital (WACC) %

Risk Premium %

Expected Inflation %

Project Specific Adjustment %

Required Hurdle Rate

What is a Hurdle Rate?

The hurdle rate is the minimum rate of return on a project or investment required by a manager or investor. It is a critical benchmark in capital budgeting used to determine if a project is worth pursuing. If the expected rate of return is below the hurdle rate, the project is typically rejected.

Understanding the Components

WACC (Weighted Average Cost of Capital): This represents the average cost a company pays to finance its assets, involving both debt and equity.
Risk Premium: The additional return required to compensate for the uncertainty and volatility associated with an investment.
Inflation Rate: Adjusts the rate to ensure the purchasing power of the returns is maintained.
Project Specific Adjustment: An additional percentage added or subtracted based on the unique risks of a specific project compared to the company's baseline operations.

Hurdle Rate Example

Imagine a manufacturing company evaluating a new assembly line. Their financial profile looks like this:

WACC	7.0%
Risk Premium	2.5%
Inflation	2.0%
Resulting Hurdle Rate	11.5%

In this scenario, any project returning less than 11.5% would be viewed as value-destructive to the company.

function calculateHurdle() { var wacc = parseFloat(document.getElementById('wacc').value) || 0; var riskPremium = parseFloat(document.getElementById('riskPremium').value) || 0; var inflationRate = parseFloat(document.getElementById('inflationRate').value) || 0; var projectRisk = parseFloat(document.getElementById('projectRisk').value) || 0; if (wacc === 0 && riskPremium === 0) { alert("Please enter at least the WACC or a Risk Premium."); return; } var totalHurdle = wacc + riskPremium + inflationRate + projectRisk; var display = document.getElementById('hurdleResult'); var finalRateDiv = document.getElementById('finalHurdle'); var summaryDiv = document.getElementById('hurdleSummary'); finalRateDiv.innerHTML = totalHurdle.toFixed(2) + "%"; var summaryText = "To be considered viable, your project must generate a return greater than " + totalHurdle.toFixed(2) + "%. "; summaryText += "This accounts for your base cost of capital (" + wacc.toFixed(2) + "%) plus associated risks and inflation."; summaryDiv.innerHTML = summaryText; display.style.display = 'block'; }