Half of Firms Adjust Hurdle Rates Amidst Volatility, Signaling Risk Reassessment

Event summary

  • The 2026 AFP Cost of Capital Survey found that 50% of organizations adjust their hurdle rates in response to market volatility, geopolitical risks, and regulatory shifts.
  • A majority (62%) of organizations use a calculated cost of capital as their standard hurdle rate, while 38% set rates above that benchmark.
  • Treasury (34%) and corporate finance (32%) are the primary functions responsible for WACC calculations, with FP&A involvement lagging.
  • CAPM (83%) and DCF (83%) remain the dominant financial models for valuation, and IRR, NPV, and ROI are widely used for decision-making.
  • Approximately 40% of organizations validate their cost of capital calculations with external parties, primarily investment banks and consulting firms.

The big picture

The AFP survey highlights a growing recognition among financial professionals that static hurdle rates are inadequate in today's volatile environment. The increased frequency of adjustments and reliance on external validation signals a heightened focus on risk-adjusted returns and a willingness to adapt investment strategies. This trend underscores the increasing complexity of capital allocation and the need for more sophisticated financial modeling and governance practices across organizations.

What we're watching

Governance Dynamics
Increased hurdle rate adjustments suggest a shift towards more dynamic capital allocation processes, potentially requiring greater board oversight and scrutiny of investment decisions.
Technology Adoption
The relatively low adoption of machine learning (18%) in cost of capital estimations indicates a potential lag in leveraging advanced analytics for investment decisions, which could create a competitive disadvantage for some firms.
Regulatory Headwinds
The sensitivity of hurdle rates to regulatory shifts implies that organizations will need to proactively monitor and adapt to evolving regulatory landscapes to maintain investment efficiency.

Related topics

Financial Services ROI