What you find in practice, of course—the test used by most CEO's—is that the cost of capital is about ¼ of 1% below the return promised by any deal that the CEO wants to do. It's very simple.
When we have capital around, we have three questions—leaving aside whether we want to borrow money, which we generally don't want to do. First, "Does it make more sense to pay it out to the shareholders than to keep it within the company?" The sub-question on that is, "If we pay it out, is it better off to do it via repurchases or via dividend? The test of whether we pay it out in dividends is, "Can we create more than a dollar by retaining it rather than paying it out?"
And you never know the answer to that. But, so far, the answer, as judged by our results, is, "Yes we can." And we think that prospectively we can. But that's a hope on our part. It's justified to some extent by past history, but it's not a certainty.
Once we've crossed that threshold, then we ask ourselves, "Should we repurchase stock?" Well obviously. If you can buy your stock at significant discount from conservatively calculated intrinsic value and you can buy a reasonable quantity, that's a sensible use of capital.
So once we cross the threshold of deciding that we can deploy capital so as to create more than a dollar of present value for every dollar retained, then it's just a question of doing the most intelligent thing you can find. And the cost of every deal that we do is measured by the second ...