I am valuing a US company with a substantial revenue stream from Korea and Japan. I want to calculate the cost of equity. Some key details for the company - 45% of revenue from Korea and 31% from Japan. According to data on your website country risk premiums for both the countries are 6.28% and 5.75% respectively. Assuming that Koreans companies generate roughly 70% revenue from Korea and Japanese companies have 60% revenue coming from Japan. Assuming 5% implied risk premium for developed markets Can you please tell me the cost of equity equation given this data.
I got my questions answered at brainly.com in under 10 minutes. Go to brainly.com now for free help!
At vero eos et accusamus et iusto odio dignissimos ducimus qui blanditiis praesentium voluptatum deleniti atque corrupti quos dolores et quas molestias excepturi sint occaecati cupiditate non provident, similique sunt in culpa qui officia deserunt mollitia animi, id est laborum et dolorum fuga.
Et harum quidem rerum facilis est et expedita distinctio. Nam libero tempore, cum soluta nobis est eligendi optio cumque nihil impedit quo minus id quod maxime placeat facere possimus, omnis voluptas assumenda est, omnis dolor repellendus.
Itaque earum rerum hic tenetur a sapiente delectus, ut aut reiciendis voluptatibus maiores alias consequatur aut perferendis doloribus asperiores repellat.
I think you should use not Total risk premiums for Korea and Japan, but Country risk premiums that are 1.2% and 0.75% respectively.
We also need:
1.) Risk free rate. We can assume it is 3.4%
2.) Beta for your company.
3.) Lambda for Korea
[% of revenue from Korea] / [1- (Korea’s Export/ Korea’s GDP)]
=[45%] / [1-49.9%] = 0.8982
4.) Lambda for Japan
[% of revenue from Japan] / [1-(Japan's Export/ Japan's GDP)]
=[31%] / [1-12.5%]=0.3543
So, cost of equity is
3.4% + (Beta * 5%) + (Lambda for Korea * 1.2%) + (Lambda for Japan * 0.75%) =
0.034% + (Beta*0.05) + (0.8982*0.012)+(0.3543*0.0075)