Best resources for calculating country-specific COC, brought to you by the globally minded ASA

The ASA’s 30th Annual Advanced Business Valuation conference in Chicago this week reflected the country’s broader concern with international markets, starting with the first general session: “International Cost of Capital—A Walk Around the Globe,” by Nancy Czaplinski (American Appraisal). Via a case study, Czaplinski applied six different cost of capital (COC) models to use in today’s global environment, each reaching a slightly different result. “Which is correct?” she asked ASA attendees, not a rhetorical question so much as a practical one that analysts will have to answer more frequently as our economies become more interdependent and foreign investments increase. “As a valuation professional you have to go through the models and see what works, depending on your project [and where it is located]. You have to look at the risks specific to that country and local economy and step back and logically assess how those factors impact your valuation and what adjustments you have to make.”

Finding data to use in developing an international cost of capital can be challenging, Czaplinski observed. For example, she uses Bloomberg and Bradynet for debt pricing,Political Risk Services for risk ratings; for country-specific equity and market risk premiums, she refers to the recent article by Pablo Fernandez (University of Navarra, Spain): “Market Risk Premium Used in 56 Countries in 2011: A Survey with 6,014 Answers.”