The firm must earn a minimum of rate of return in order to cover the cost of generating funds to finance investments. If this is not the case then no one will be willing to buy the firm's bonds, preferred stock, and common stock. The firm's required rate of return, is called the COST OF CAPITAL. or the hurdle rate. The cost of capital is the required rate of return that a firm must achieve in order to cover the cost of generating funds in the marketplace. This is why Howard Sloan wants to estimate the firm's hurdle rate