Comment by layer8
4 hours ago
The risk-free interest rate is a pretty low floor for returns though? At least in my experience with expectations of what counts as a profitable project.
4 hours ago
The risk-free interest rate is a pretty low floor for returns though? At least in my experience with expectations of what counts as a profitable project.
The risk-free floor is around 4% these days. Because the return on any other use of capital must be risk-adjusted, the breakeven might be 6-7%. That is roughly a 3x higher rate of return than you needed to breakeven when the risk-free rate was ~0%.
Small absolute changes in risk-free interest rates cause many things to become unprofitable when the relative change in interest rates is large. A risk-free rate of 1.0% and 1.5% are both small but the latter is 50% higher than the former.
Yeah, but my experience with what is considered a profitable project is firmly in the two-digits percentage range. Anything single-digit would count as a fairly low floor.
A lot of it depends on the risk. For something that has a profile more like venture you might need a 15-20% return. There are also fixed overheads so you also need an element of scale.
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