Answer (D) is correct . A hurdle rate is not necessary in calculating the accounting rate of return. That return is calculated by dividing the net income from a project by the investment in the project. Similarly, a company can calculate the internal rate of return (IRR) without knowing its hurdle rate. The IRR is the discount rate at which the net present value is $0. However, the NPV cannot be calculated without knowing the company’s hurdle rate. The NPV method requires that future cash flows be discounted using the hurdle rate.
Answer (A) is incorrect because The accounting rate of return and the IRR, but not the NPV, can be calculated without knowing the hurdle rate.
Answer (B) is incorrect because The accounting rate of return and the IRR, but not the NPV, can be calculated without knowing the hurdle rate.
Answer (C) is incorrect because The accounting rate of return and the IRR, but not the NPV, can be calculated without knowing the hurdle rate.
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