Cross-Border Valuation: The International Cost of Equity Capital / Gordon M. Bodnar, Bernard Dumas, Richard D. Marston.

Format:

Book

Author/Creator:

Bodnar, Gordon M.

Contributor:

National Bureau of Economic Research.

Dumas, Bernard.

Marston, Richard D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10115.

NBER working paper series no. w10115

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Cross-Border Valuation

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

How does a firm in one country evaluate an investment in a firm in another country, or how does it evaluate a foreign project that the firm itself is undertaking? The firm must estimate future free cash flows just as in a domestic project, but choosing an appropriate discount rate is a particular challenge. This study examines the determinants of the discount rate for an international acquisition or project by examining the sources of risk in an international setting. These risks include stock-market price risk measured with various versions of the capital asset pricing model, as well as exchange rate risk and political risk. To measure stock market risk, both segmented and integrated models of the world equity markets are considered. The emphasis of the study is on some of the practical aspects of estimation, particular for markets where no comparable investments exist on which to base estimates of risk premiums. To show how each of these risks might be measured, the study reports estimates for a representative French firm, Thals. The estimates range widely depending on whether or not the equity market is globally integrated.

Notes:

Print version record

November 2003.