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8 Cards in this Set
- Front
- Back
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Risk Free Rate
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RFR = 10 Year U.S. Gov + inflation differential
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Market Risk Premium
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Use long term global market risk premium
of 4.5% to 5.5% |
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Beta
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Use a industry beta from a globally-diversified market index
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High inflation and income taxes
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THINK: Forecast nomimal earnings before taxes
income taxes based on nominal earnings so forecast of nomial earnings before taxes needed |
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High inflation and nominal capital expenditures
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THINK: Forecast capital exp, dep, EBITA in REAL
nominal cap expend difficult to forecast from nominal sales, capital expenditures. Do: Forecast capital expenditures, depreciation, EBITDA on real basis |
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High Inflation and Real Cash Flows from Working Capital
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Does NOT= change in real working capital
nominal working cash flows must be converted to real cash flow |
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Marginal Tax rate
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Reflect local taxes applied to interest on debt
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Arguments for adjusting cash flow rather than discount
rate |
1. Country risks diversifiable
2. Companies respond differently to country risk 3. Country risks are one sided (down only). 4. Identify cash flow effects aids in risk management |
