The Hurdle Rate Approach in Determining the Acceptability of Projects

question 38

Multiple Choice

The hurdle rate approach in determining the acceptability of projects is _____.

• A) an improvement over the risk-adjusted discount rate approach because it provides for an objective basis to determine risk premiums for individual projects
• B) a modification of the internal rate of return approach
• C) inconsistent with the principle of project risk balancing
• D) a method used with the certainty equivalent approach

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Definitions:

Rational Self-Interest

The principle that individuals tend to make decisions that maximize their own utility or benefit.

Collude

To conspire or work together secretly, especially in order to cheat or deceive others.

Dutch Auction

A type of auction where the auctioneer starts with a high asking price which is lowered until some participant is willing to accept the auctioneer’s price, or a predetermined minimum price is reached.

Sealed-Bid Auction

A type of auction where all bidders simultaneously submit sealed bids without knowing the bids of other participants.