• The threshold rate is the minimum rate of return required for a project or investment.

  • Threshold rates give companies an idea of whether they should take on a particular project.
  • Riskier projects tend to have a higher threshold score, while projects with lower scores are less risky.
  • Investors use a threshold rate in discounted cash flow analysis to obtain the net present value of an investment to assess its value.
  • Companies often use their weighted average cost of capital (WACC) as a threshold rate.