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Making rational and undistorted corporate investment decisions is critically important to organisations. “Scientific” investment appraisal can play a central role, particularly setting the hurdle rate. Empirical research reveals that actual rates generally exceed organisations’ cost of capital – the so-called hurdle rate premium (HRP) puzzle. Allowing for bounded rationality of corporate decision-makers, the purpose of this paper is to mobilise the retrievability cognitive bias as one explanation of this paradox.

A systematic structuring and investigation of the legacy of eight scenarios, representing “correct” and “incorrect” decisions on “good” and “bad” proposals, is used to explain the inconsistency between normative capital investment theory and actual practice.

Decision makers’ cognitive processes based on informal perceptions, strengthened by the scope of formal post-audit routines, provide a plausible explanation why investment decision makers tend to systematically set hurdle rates too high.

The findings have still to be explored in more depth by fieldwork and experimental research.

The policy implications of this study are that corporate success could be enhanced by making executives aware of the HRP phenomenon and of its behavioural causes; also by including significant rejected investment proposals in the post-audit programme and communicating the opportunity cost of “false negative” decisions on proposals not adopted.

The paper provides a new explanation for a recognised phenomenon: Allowing for bounded rationality of corporate decision-makers, the paper applies research on a cognitive bias to the setting of the hurdle rate in investment appraisal.

The purpose of this study is to analyse the current relationships between developer characteristics in terms of dominant property type (residential, commercial, retail, industrial, tourism, “other”), ownership (publicly listed, publicly unlisted, private, government), organisational structure (speculative-trader, investor developers, development managers) and size (small, medium, large) in the frequency of use and required minimum value of hurdle rate metrics.

A questionnaire survey of 225 Australian and New Zealand trader developers, development managers, investors, valuers, fund managers and government/charities/other relating to the feasibility practices of different types of Australia/New Zealand property development companies.

(1) Residential dominant developers are more likely to use margin on development cost (MDC) required to have a higher minimum internal rate of return (IRR) percentage; (2) investor developers are more likely to use the payback period as a hurdle rate, and specific hurdle rates as a part of a go/no-go decision; (3) trader developers adopt a higher percentage of IRR and deviate further from accepted financial theory in hurdle rate selection; and (4) national property development organisations in multiple geographic regions use qualitative frameworks more as a decision-making process and use MDC less as a hurdle rate.

The study is limited to a sample of property practitioners working in Australia/New Zealand at the time of data collection in 2016 and, further empirical research is needed spatially and temporally to determine the extent of the findings. Further research is also needed with small- to medium-sized development organisations' on the extent to which they should use different metrics in project selection and for an improved understanding of the technical and attitudinal difficulties facing their current adoption.

First study to examine the feasibility practices of different types of Australia/New Zealand property developers.

In January 1996, the chief financial officer must fashion a response to a raider who claims that a major business segment of the company should be sold because it is not earning a satisfactory rate of return (ROR). The case recounts the debate within the company over the use of a single hurdle rate to evaluate all segments of the company versus a risk-adjusted hurdle rate system. The students’ tasks are to resolve the debate, estimate weighted-average costs of capital (WACC) for the two business segments, and respond to the raider. Because the case was prepared to serve as part of an introduction to estimating investors’ required rates of return, it would best follow one or two class sessions introducing techniques for estimating WACC. Although the numerical calculations required are light, some of the subtleties about the use of risk-adjusted hurdle rates will require time for the novice to absorb. The case can be used to pursue a variety of teaching objectives, including (1) extending risk return (i.e., mean variance) analysis to corporate finance; (2) surveying classic arguments for and against the use of risk-adjusted hurdle rate systems; (3) assessing the assumptions and limitations of risk-adjusted hurdle rate systems; (4) exercising the estimation of segment WACCs; and (5) considering possible organizational barriers to the implementation of risk-adjusted hurdle rates.

Of vital importance to the long‐term profitability and level of investment in a company or indeed an economy is the determination of reliable hurdle rates, or minimum required rates of returns, for investment projects. Hurdle rates set too high lead to missed opportunities for profit and growth. Understating hurdle rate levels give rise to uneconomic investment decisions and fall in market values. As every financial manager faced with the problem of determining these rates of return is aware there are many different approaches, each of which, if followed mechanically, could produce very different solutions. The main reasons for such variances rest in the assumptions underlying the various approaches. This article concentrates on the application of one of the more recent approaches based on the capital asset pricing model (CAPM). Its positive orientation and intuitively appealing conclusions have made it the central equilibrium model of financial economics.

Examines how individual projects will affect the organization’s stated desire to “add value” by its operations, particularly how the market will judge each project on this basis. Considers rates of return, risk and cost of capital. Provides practical guidance for managers seeking to establish the cost of capital for a number of different types of project. Also provides special guidelines useful in the analysis of cost reduction projects.

The purpose of this paper is to investigate the merits of a full privatization policy of the HDB concessionary rate mortgage loans. It is believed that price competition among domestic banks will be infused and sustained, resulting in improved efficiency for the banking sector and the economy.

This paper first compares the loan interest rates of the domestic banks for HDB flat buyers to the HDB concessionary interest‐rates. Then it investigates the performance of the HDB, by assessing whether its mortgage yields are able to meet the requirements set forth by means of HDB's hurdle rates.

The findings suggest that HDB's mortgage yields are insufficient in meeting the performance standards set by the HDB, reflected by the hurdle rate. In conclusion, it is recommended that the HDB should further delegate this part of business to the private sector, where better financial performances are expected among domestic banks under competitions.

This paper is confined to mortgages subject to constant interest rates over time, despite, firstly, the availability of floating‐rate mortgages on the market, and, secondly, the quarterly revised fixed rate mortgages offered by the HDB.

While sharing some structural similarities with the USA on mortgage finance, disparities in the degree of government involvement in the mortgage market of Singapore makes it worth studying. Also, it sheds light on further studies on other nations with similar features, such as the presence of strong government support in the mortgage finance sector.

Compensation of funds managers increasingly involves elements of profit sharing that entitle managers to option-like payoffs. An important example is the compensation of private equity fund managers. Compensation of private equity fund managers typically consists of a fixed management fee and a performance-related carried interest. The fixed management fee resembles common compensation terms of mutual funds and hedge funds, while the performance-related carried interest is uncommon among most mutual funds. Moreover, the performance-related carried interest typically differs from variable hedge fund fees. In this chapter, we derive the value of the variable components of private equity fund managers’ compensation based on a risk-neutral option-pricing approach.

Evaluating capital investments for additions or modifications to warehouses, for replacement of equipment or for entirely new facilities is a complex activity which involves numerous financial, competitive and other considerations. The financial aspect of capital investments is addressed and it is shown how ten different investment criteria can be brought to bear on the capital investment issue. The ten investment criteria consist of five primary criteria and five secondary criteria. The primary criteria are payback period in years, non‐discounted rate of return on investment, internal rate of return, Baldwin rate of return, and benefit cost ratio. All ten criteria are described and suggestions are made when each criterion is appropriate.