If a project’s IRR equals the hurdle rate exactly, the usual decision is to:

If a project’s IRR equals the hurdle rate exactly, the usual decision is to:

• A. Accept the project
• B. Reject the project
• C. Indifferent; require further analysis
• D. Seek a higher hurdle rate

Answer: (C)

The important idea is that the hurdle rate is the minimum return a project must earn to be worth taking. If the internal rate of return exactly matches that hurdle rate, the present value of the project's cash inflows just equals the initial investment, so the net present value is zero. That means you neither gain nor lose value from the project at the stated minimum return, so you’re indifferent based on value alone. In practice, because cash-flow estimates aren’t perfect and there can be strategic reasons to pursue a project, it’s common to flag this for further analysis or to consider other factors before making a decision.

The important idea is that the hurdle rate is the minimum return a project must earn to be worth taking. If the internal rate of return exactly matches that hurdle rate, the present value of the project's cash inflows just equals the initial investment, so the net present value is zero. That means you neither gain nor lose value from the project at the stated minimum return, so you’re indifferent based on value alone. In practice, because cash-flow estimates aren’t perfect and there can be strategic reasons to pursue a project, it’s common to flag this for further analysis or to consider other factors before making a decision.