The first is that the reduction in the cost of borrowing has been offset by a rise in the required risk premium due to the uncertainties that I spoke about. If this were so, the hurdle rate would be unchanged, with lower interest rates just compensating for the riskier environment.
The second possibility is that some firms have been slow to adjust to the new reality of low interest rates. We hear reports that a hurdle rate of return of 13 to 14 per cent has been hardwired into the corporate culture in some companies. Changing this hard-wiring is difficult and time consuming.