required rate of return

The amount of return that a project or investment is required to have before the company agrees to budget the money or investors agree to make the investment. If the expected return doesn’t exceed the required rate of return the project or investment won’t be made. Companies do a required rate of return analysis before deciding to fund a new joint venture or to purchase a piece of equipment. The analysis examines what the expected increase in revenue will be and factors in increased costs as well as the interest that will be paid to borrow the money, if applicable.