Title Details

Roger J. Grabowski, Managing Director of Duff & Phelps LLC, is a major speaker at conferences and has testified in court as an expert witness on the value of closely held businesses and business interests, matters of solvency, valuation and amortization of intangible assets and other valuation issues. Roger authors the annual Duff& Phelps' Risk Premium Report.

James P. Harrington, Director in the Office of Professional Practice at Duff & Phelps, is an accomplished financial writer and analyst. He provides technical support on client engagements involving cost of capital and business valuation matters, and leads efforts for development of Duff &Phelps' studies, surveys, online content and tools, and internal models.

Carla Nunes, Director in the Office of Professional Practice of Duff & Phelps LLC, provides firmwide technical guidance on a variety of valuation, financial and tax reporting issues. She has directed multiple valuation assignments for a wide range of industries, including pharmaceutical, biotechnology, healthcare, vitamin retail, specialty chemicals, industrial manufacturing, and gaming and hospitality.

Acknowledgements xi

Introduction xii

Who Should Use the 2016 International Valuation Handbook – Guide to Cost of Capital xii

New and Notable xiii

About the International Valuation Handbook – Guide to Cost of Capital xiv

ERPs, CRPs, and RVs Are Different, and Are Properly Used Differently xviii

Risk Premia Over the Risk-free Rate and Risk Premia over CAPM (i.e., size premia)

Measure Different Types of Risks xix

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

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

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 5-3

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 6-5

Different Investor Perspectives 6-6

Global Cost of Equity Capital – High-level Comparisons 6-8

Presentation of Cost of Capital Data 6-14

Country Risk Premia (CRP) Defined 6-15

How CRPs Are Calculated 6-15

Using CCR Model CRPs to Estimate Base Country-level Cost of Equity Capital 6-17

Using CCR Model CRPs to Estimate Cost of Equity Capital for Use in Evaluating a Subject Business, Asset, or Project 6-20

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