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Define cut off point cut-off rate in accounting.
Cut off point is base point at which investment proposal is accepted. It depends on risk of the investment proposal. If the proposal has high risk then, cut off point is high and if the proposal has low risk then, cut off point is low.
Cut off rate is the lower or base rate at which, investors gets their returns for their investment. Investors will use different techniques to analyse their proposals before investing. Depends on risk of the project and cut off rates varies for different projects.
Factors affecting cut off rate
- Amount − If the investing amount is high, then cut off rate is more.
- Time frame − Depend of amount paid cut off rate varies. If amount is paid in small amounts (instalments) then, cut of rate is low and if amount is paid at once then, cut off rate is high.
- Risk − Risk is directly proportional to investments. If amount is invested in very high-risk project then, cut off rate is very high. Similarly, if amount is invested in low or minimum risk projects then, cut off rate is low.
Updated on: 26-Sep-2020
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