The required rate of return is the minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project. The RRR is used in both equity valuation and in corporate finance. Investors use the RRR to decide where to put their money, and corporations use the RRR to decide if they should pursue a new project or business expansion.
For companies, this is defined by the Top Management and followed by everyone else. It is compared against Internal Rate of Return to measure whether one should go ahead. The mid and lower level managers cannot be expected to calculate WACC every time they want to evaluate a project. Hence the top management defines this required rate which is based on several factors, but most importantly WACC
