- Invest in projects that yield a return greater than the
minimum acceptable hurdle rate.
- The hurdle rate should be higher for riskier projects
and reflect the financing mix used - owners funds (equity) or borrowed
- Returns on projects should be measured based on cash
flows generated and the timing of these cash flows; they should also consider
both positive and negative side effects of these projects.
- Choose a financing mix that minimizes the hurdle rate
and matches the assets being financed.
- If there are not enough investments that earn the hurdle
rate, return the cash to the owners of the business.
- The form of returns - dividends and stock buybacks
- will depend upon the stockholders characteristics.
Objective: Maximize the Value of