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THE DETERMINATION AND USE OF INVESTMENT HURDLE RATES IN CAPITAL BUGETING: A SURVEY OF AUSTRALIAN PRACTICE *
Author(s) -
McMahon Richard G. P.
Publication year - 1981
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.1981.tb00025.x
Subject(s) - capital budgeting , discounted cash flow , cash flow , investment (military) , cost of capital , capital (architecture) , order (exchange) , economics , capital investment , rate of return , business , finance , actuarial science , microeconomics , geography , political science , profit (economics) , archaeology , project appraisal , politics , law
This paper summarizes the results of a survey, conducted in 1979, which investigated Australian practice in the determination and use of investment hurdle rates, and in certain other areas of capital budgeting which impinge on hurdle rate practice. The study suggests a significant closure of the gap between theory and practice in capital budgeting in terms of the use of discounted cash flow techniques of capital project evaluation, and in terms of the use of some tools of finance such as the weighted average cost of capital. However, many developments in the determination and use of investment hurdle rates appear to have taken place at a slower rate, and it is possible that some “back‐tracking” may be required in order to improve practice.