The hurdle rate aids in making investment decisions by serving as a benchmark for the minimum return on an investment that would make it an acceptable risk for the investor. It is often used in capital budgeting where it is used to determine the potential return on an investment or project compared to the risk. Companies may have more than one hurdle rate depending on the risk involved in proposed investments. If the expected return on an investment does not meet or exceed the hurdle rate, the project is typically not undertaken.
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