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Businesses attempt to estimate the possible income received by certain transactions. They then compare this amount to the necessary rate of return on the investment. Every investment has a necessary return (usually enough so the company doesn't lose money in the investment).

The cutoff point, therefore, is the minimum rate of return. If a company invests in something with a projected 15% rate of return, but the minimum rate of return is 20%, then the company is better off not investing.

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