The hurdle rate determines how rapidly the value of the dollar decreases out in time, which, parenthetically, is a significant factor in determining the payback period for the capital project when discounting forecast savings and spending back to present-day terms.
Most companies use a 12% hurdle rate, which is based on the fact that the S&P 500 typically yields returns somewhere between 8% and 11% (annualized).
Companies operating in industries with more volatile markets might use a slightly higher rate in order to offset risk and attract investors.
[2] The hurdle rate is always higher (usually significantly) than the cost of capital - since generally no project is undertaken by a for profit entity that does not have an expected rate of return higher than the cost of capital (i.e., a profit) and every project has risk ( which must be compensated for).
When a project has been proposed, it must first go through a preliminary analysis in order to determine whether or not it has a positive net present value using the MARR as the discount rate.