Risk is a given in any investment. It is incorporated into valuation in the cost of equity and debt which flows into the discount rate. International projects are considered higher risk given the potential for political and/or currency fluctuations. Therefore, a country risk premium is added to the discount rates for international projects. But how will you estimate a country risk premium if your firm operates in different countries? This page looks at how you can estimate the country risk premium for a multinational firm with operations in multiple countries.
We address the question: “How would you apply country risk premiums on a global company/multinational company?”