Hurdle rates: repricing after the 10-year yield jump

September 23, 2026 · 5 min · Free, with full transcript

Treasury yields moved roughly 90 basis points and most hurdle rates stayed where they were set in 2023. The argument here is that a hurdle rate is a living price tied to the risk free rate, and refusing to move it is fear dressed up as discipline. Two failure modes get named: the frozen rate crowd approving projects against an old 8% bar, and over-correctors who jump to 14% after one bad session. You leave with a way to rebuild weighted average cost of capital from the current 10-year near 4.6%, an equity risk premium of 4 to 5 points and your real debt to equity mix, plus Danaher's quarterly reset practice and a 50 basis point trigger rule.

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4 min

Chapters

Key takeaways

  • Rebuild your cost of capital from today's 10-year Treasury, add a 4 to 5 point equity risk premium, and reweight by your current debt to equity mix.
  • Set a written trigger: reset the hurdle rate when the 10-year moves more than 50 basis points and holds for three weeks.
  • Reset capital allocation assumptions quarterly and publish the logic internally, as Danaher's team does, so no one hides behind a stale spreadsheet.
  • Avoid both failure modes: funding projects that only clear an old 8% bar, and panicking the hurdle up to 14% after one session.
  • Before the next committee, re-run your top five pending projects at today's real discount rate and re-sort the ranking.
Read the full transcript

Host:Welcome back to Leaders Insights. U.S. Treasury yields surge again, a CFO's playbook for recalibrating hurdle rates now and why it matters this week.

Expert:When yields jumped last week, how many of your peers actually changed a single number in their models? Be honest. Almost none. I called six CFOs the next morning. Five of them were still running a hurdle rate. The minimum return a project has to clear before you fund it. That they'd set back in 2023. Their cost of money moved 90 basis points, and their approval bar didn't budge an inch.

Host:That sounds lazy. Or is it something worse?

Expert:It's fear dressed up as discipline. Nobody wants to walk into the investment committee and kill three projects they championed last quarter. So they pretend the goalposts haven't moved. Meanwhile, the 10-year Treasury, the yield the whole world price's risk off, is telling them exactly how much the ground shifted.

Host:Give me the durable lesson, not the headline. What do the good operators already know that the rest are relearning painfully?

Expert:That your hurdle rate is a living price, not a plaque on the wall. The best ones treat it like a fuel gauge. When the risk-free rate moves, the weighted average cost of capital, the blended cost of your debt and equity, moves with it, and every project on the pipeline gets re-ranked. It's plumbing, not politics.

Host:Name someone who does it right.

Expert:Danaher. Their capital allocation team resets assumptions quarterly, not annually, and they publish the logic internally so no one can hide behind a stale spreadsheet. When money got more expensive in 2022 and 2023, they didn't freeze. They just raised the bar and shifted spend toward the highest return businesses. That's why their return on invested capital held while sloppier conglomerates watched theirs bleed out.

Host:What are you seeing go wrong right now, specifically?

Expert:Two failure modes. First, the frozen rate crowd I mentioned. They're greenlighting projects that clear an old 8% hurdle, but not a real 9.5% one. They're destroying value and calling it growth. Second, the over-correctors. They panic, jack the hurdle to 14% overnight, and starve genuinely good projects because one bad session spooked them.

Host:So what's the actual number a CFO should reach for this week?

Expert:Start from the current 10-year, call it around 4.6% today. Add your equity risk premium. The extra return shareholders demand for owning stock instead of treasuries. Historically, 4 to 5 points. And re-weight by your real debt-to-equity mix, not last year's. For most mid-cap industrials I'm looking at, the honest cost of capital lands near 9 to 10%. If your model still says 7.5% comma, you're lying to your board.

Host:Isn't there a risk you recalibrate? Yields drop next month and you look like an idiot?

Expert:Sure. That's why you don't chase every tick. You set a rule. If the 10-year moves more than 50 basis points and holds for three weeks, you reset. A trigger, not a reflex. The mistake isn't moving. It's having no policy at all. So every meeting turns into a debate about vibes.

Host:Vibes in a capital allocation meeting.

Expert:You'd be amazed. I sat in one at a company I won't name where the finance lead defended an 8% hurdle by saying, it's always been 8. That's not analysis. That's tradition. Tradition is expensive when money isn't free anymore.

Host:What about the software everyone's selling to automate this?

Expert:The planning tools, AnaPlan, Pigment, that crowd, will happily rerun your models the second you change an input. Useful. Your own benchmark decks quietly assume you feed them the right rate. And that's the part they can't do for you. The judgment on the discount rate stays human. Garbage in, confident garbage out.

Host:So the tool won't save the CFO who's asleep.

Expert:The tool makes an awake CFO faster and in a sleep one more dangerous. It scales whatever discipline you already have or don't.

Host:One thing our listener does before their next committee meeting? Go.

Expert:Find out about your top five pending projects tonight, replace the discount rate with today's real cost of capital, and re-sort them. If the ranking changes, and it will, you just found the meeting you actually need to have.

Host:Sources for today's episode. Financial Times, Accounting Today, CFO Dive. That's it. The CFO decision tools are live at MBA-training.com.

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