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What does Dogbert and Hurdles have to do with Finance?
Capital Budgeting is the process by which firms determine which investment projects will increase shareholder wealth. A vital aspect of this process is the determination of the appropriate discount rate at which to discount the projects future cash flows. This rate is also known as a firm’s hurdle rate. Just as a runner must be able to jump high enough to clear the hurdle the projects return must be high enough to cover the various capital investors required rates of return otherwise known as the Weighted Average Cost of Capital (WACC).
Can firms have more than one hurdle rate, why or why not. Under what circumstances might it make sense for a firm to have multiple hurdle rates?