Hurdle rate is the minimum rate or return required to be earned on the assets invested in the business. A company would accept any investment opportunity only when the return on investment from the opportunity is more than company’s hurdle rate. Return on investment (ROI): Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows: R O I = O p e r a t i n g I n c o m e A v e r a g e t o t a l a s s e t s To indicate: If the new investment is viable.

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Chapter 10, Problem 2.4GAP

To determine

Concept introduction:

Hurdle rate is the minimum rate or return required to be earned on the assets invested in the business. A company would accept any investment opportunity only when the return on investment from the opportunity is more than company’s hurdle rate.

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

To indicate:

If the new investment is viable.

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