Hi, welcome back to Finance for Non-Finance Professionals. As we wrap up week two, we've been talking about capital budgeting how the firm spends its money. We've talked about a lot of different tools like MPV and IRR, and we've got our practitioner in the field again. Christine Boyd here, and have a chat about what practitioners do in practice. Hi. So, Christine give us your perspective on capital budgeting and some of the different tools we've talked about this week. In capital budgeting I've seen a wide range everything from the payback method, certainly to a thorough MPV for some of the larger projects. In some of my experiences, there were slightly smaller companies that we were dealing with, and so the MPV might have been a little sophisticated for them. But in the larger companies, certainly thorough MPVs are done to select the capital projects. One example, there was it was a fairly low growth company, mature, and in that case they did not do an MPV they used payback. So, you see payback get used a lot especially in sort of smaller companies, where there's a little bit more of an informal capital budgeting process? Yes. Definitely. I think if you're in a larger public company like General Electric, there's a much more formal process for spending money. Right? Yes they had to have justification for the investors, justification for their banks, and there's no other way than with the MPV. So, if it's a smaller maybe family-owned company that maybe they don't have MBAs, like you do Christine. Right? Or they haven't taken finance for non-finance professionals. You see sort of looser more informal techniques like payback. Yes. Certainly. Okay. So, I guess I'm thinking about the trade-offs between the cost and benefit of these measures. We had said during week two, that MPV and IRR were sort of the gold standard. So, in trading off whether or not to use those more sophisticated techniques, I guess you see in practice smaller less sophisticated companies using things like payback or return on capital. We got a lot of input from the field, from operations groups, say for example, and the guys who know the business. Right. In those cases like you said their financial training may not be as robust as the large companies treasury group. So, in those cases to evaluate projects that they would put in front of us, we would ask simply. Well, how much money is this going to make you next year? How much money is it going to make us in three years? Through that, what we bring to the table is basically the simple payback. Right. So, that's an interesting point that you brought up, which is that you're going out and you're talking to the operations, and the marketing, and the strategy people, because it's an important thing to remember that the positive MPV projects whether or not they don't come from the finance people. Right? Definitely not. So, where do those projects come from? Definitely generated from the people and the other departments who are on the front line, who understand the competition, the challenges that we going to be facing the company over the next few years, the threats, and the customers, a product line. So, all those other areas of the business where people are actually selling things. Right? Right. The finance group then gets those numbers and makes those budgeting decisions. But those positive MPV projects or negative MPV projects, are coming from the sales, and strategy, and marketing people. Right? Right. So, knowing that that sort of represents that balance, do you ever out in the field see people take what you think were negative MPV projects? Certainly, I mean when you say that you can certainly be accepting it what you think is a negative MPV project, because someone has maybe overestimated expected cash flows. But also another scenario where I've seen a negative MPV project would be government regulations, where you're regulated or environmentally driven, where you're regulated, you need to do a project whether it's a negative MPV or not. You have maybe an environmental cleanup to do. Yes. We were thinking about which way to do it. Right. Yeah. So, there it's still important even though you're regulated into doing the project, it's always still important, it's consistent with best practices, to still do MPV IRR to make sure even though you have to lose money on this project that you're losing that money as gracefully as possible. All right? All right. So, even when you're losing money, it's important to do the capital budgeting tools to be consistent with best policies and practices. Absolutely. I mean in most cases companies have investors whether private or public, and banks give loans, and you have to present your cash flow expectations to them an MPV really for the projects is the only way to pull in the capital budgeting piece. Great. Christine, thanks again for joining us. Next week, we'll be talking about how to measure cash flows, and the difference between cash flows to the our investors and accounting earnings, and Christina will join us again to talk about that. Great. Thanks Christine.