BVR has been working with top providers to develop a robust cost of capital model appraisers and investors can use when valuing international assets. Our hope is to release a major product in this area in March 2012. We have also licensed industry risk reports by country from London-based Business Monitor International, and will make those available very shortly.
In the meantime, one international cost of capital model that's available and peer-reviewed, obviously, comes from Professor Campbell Harvey at Duke-Fuqua (he's also affiliated with the National Bureau of Economic Research in Cambridge MA). He describes his $2500 Excel model thusly:
What does the program do?The basic goal of the program is to deliver the cost of capital across 136 countries. The program produces the cost of capital for a project of average risk within a particular country. The methodology follows the model of Erb, Harvey and Viskanta (1995) (EHV) who use a method based on matching credit/political/economic/financial risk to expected returns. All expected returns are calculated in U.S. dollars.
The cost of capital implementation is more general than the EHV model.
- We focus on Institutional Investor's Country Credit Risk which is updated every 6 months.
- The client can override the rating if there are favorable or unfavorable conditions between March and September (when ratings are published). Alternatively, the client should consider subscribing to The International Country Risk Guide ( produced by Political Risk Services in East Syracuse NY (315-431-0511)). These ratings are monthly and can be used as a guide for overriding the Institutional Investor ratings.
- The client can anchor to the U.S. risk premium. Every quarter, John Graham and I survey about 400 CFOs for their assessment of the U.S. one-year and 10-year risk premium. E-mail me to find out as to how to subscribe to the risk premium service (which provides the risk premium and confidence intervals).