Hello Jason,

Another thoughtful piece.

I know this is a US centric issue (low risk free rate) yet important to the rest of the world. In my part of the world (India) corporate managers largely use qualitative factors over quantitative factors while evaluating decisions.

So that is a right brain approach, right :)

For example, managers ask - how we do capture markets 5 years hence if we invest now. Should we invest in project A so that smaller projects B,C,D can be easily won easily, if we win A. Should we partner with company X for bidding for certain project A even though our share in the profits may be lower. Should we lever up 3x for a business that breaks even in 10 years. Should I invest in project A that gives me good advertising and visibility to the world while my rest of the business thrives.

One issue is I have never comprehended whether capital budgeting framework traditionally considers these aspects or not. The knock-on effects, the competitive threat factor, the rent-seeking that companies, rightly or wrongly, aspire to gain.

I am hazarding a guess that similar issues and manager traits might be present in the US as well.

I am also deeply influenced by Buffet's statement that cost of capital is not a precise number for all, but the opportunity cost of the next best thing to each one. Many companies in India imbibe that thought quite naturally.

Thank you again for an interesting piece.

Regards
Ashok