Acknowledgements xiv
Introduction xv
Who Should Use the 2017 Valuation Handbook – International Guide to Cost of Capital xv
New and Notable xvi
About the International Valuation Handbook – Guide to Cost of Capital xviii
ERPs, CRPs, and RVs Are Different, and Are Properly Used Differently xxi
Risk Premia Over the Risk-free Rate and Risk Premia over CAPM (i.e., size premia)
Measure Different Types of Risks xxii
Chapter 1 International Cost of Capital – Overview 1-1
Cost of Capital Defined 1-1
Are Country Risks Real? 1-2
Risks Typically Associated with International Investment 1-5
Does the Currency Used to Project Cash Flows Impact the Discount Rate? 1-11
Summary 1-13
Chapter 2 Strengths and Weaknesses of Commonly Used Models 2-1
World (or Global) CAPM 2-1
Single-country Version of the CAPM 2-4
Damodaran’s Local Country Risk Exposure Model 2-5
Alternative Risk Measures (downside risk) 2-6
What Model Should I Use? 2-11
Chapter 3 International Equity Risk Premia 3-1
Description of Data 3-1
Change in Short-term Risk-free Rate Series 3-3
U.S. SBBI Long-term Government Bond Series Data Revision (immaterial) 3-3
Methodology 3-4
Description of Data Series Used 3-8
Currency Translation 3-15
How to Use the International ERP Tables 3-17
Appendix 3A: Additional Sources of International ERP Data 3A-1
Dimson, Marsh, and Staunton Equity Risk Premia Data 3A-1
Pablo Fernandez Equity Risk Premia and Risk-free Rate Surveys 3A-7
Appendix 3B: Additional Sources of Equity Risk Premium Data – Australia 3B-1
Overview of the Australian Dividend Imputation Tax System 3B-1
Australian Equity Risk Premium Under Three Investor Perspectives 3B-2
Appendix 3C: Additional Sources of Equity Risk Premium Data – Canada 3C-1
The Current State of the Canadian Bond Market, and an Estimate of the Canadian Equity Risk Premium 3C-1
Conclusions 3C-7
Final Thoughts: Duff & Phelps Analysis on Methods of Estimating a Normalized Risk-free Rate 3C-9
2017 Valuation Handbook – International Guide to Cost of Capital xiii
Chapter 4 Country Yield Spread Model 4-1
Introduction 4-1
Brief Background on Euromoney’s ECR Score 4-2
Investor Perspectives 4-3
Country Yield Spread Model 4-4
Methodology – Country Yield Spread Model 4-6
Using Country Yield Spread Model CRPs to Estimate Base Country-level Cost of Equity Capital 4-10
Using Country Yield Spread Model CRPs to Estimate Cost of Equity Capital for Use in Evaluating a Subject Business, Asset, or Project 4-12
Chapter 5 Relative Volatility Model 5-1
Relative Volatility Model 5-1
Investor Perspectives 5-2
Methodology – Relative Volatility Model 5-4
Using Relative Volatility Model RV Factors to Estimate Base Country-level Cost of Equity Capital 5-5
Using Relative Volatility Model RV Factors to Estimate Cost of Equity Capital for Use in
Evaluating a Subject Business, Asset, or Project 5-7
Chapter 6 Erb-Harvey-Viskanta Country Credit Rating Model 6-1
A Notable Difference with Previous Reports: Country Risk Premia (CRPs) 6-2
Data Sources 6-3
The CCR Model 6-7
Different Investor Perspectives 6-8
Global Cost of Equity Capital – High-level Comparisons 6-10
Presentation of Cost of Capital Data 6-16
Country Risk Premia (CRP) Defined 6-17
How CRPs Are Calculated 6-17
Using CCR Model CRPs to Estimate Base Country-level Cost of Equity Capital 6-19
Using CCR Model CRPs to Estimate Cost of Equity Capital for Use in Evaluating a Subject Business, Asset, or Project 6-22
Chapter 7 Firm Size and the Cost of Equity Capital in Europe 7-1
Differences in Returns Between Large and Small Companies in Europe 7-1
Countries Included 7-2
Data Sources 7-2
Regional Differences 7-3
Two Types of Risk Premia Examined 7-5
Conclusion 7-11
Data Exhibit 1: International Equity Risk Premia (ERPs)
Data Exhibit 2: Country Yield Spread Model: Country Risk Premia (CRPs)
Data Exhibit 3: Relative Volatility Model: Relative Volatility (RV) Factors
Data Exhibit 4: Erb-Harvey-Viskanta Country Credit Rating Model: Country Risk Premia (CRPs)
Data Exhibit 5: Study of Differences in Returns Between Large and Small Companies in Europe
