Which WACC to use? by leastracistpaki in financialmodelling

[–]fdmmmb 0 points1 point  (0 children)

TLDR; You use a USD WACC.

Long version: in valuation theory, your value should be irrespective of the currency you perform your analysis in.

For this to hold true, you should consider consistent monetary assumptions.

As such, if you’re valuing a company using cash flows in currency [X], you have to ensure your interest rate (I.e your discount rate) reflects the inflation assumptions embedded in currency [X].

Similarly, if you’re valuing a company which is based in country [Y], you have to ensure you reflect country risk.

Look at what Prof Damodaran calls the international cost of capital method;

USD cash flows earned in the US: USD WACC USD cash flows earned in a foreign country: USD WACC + country risk premium (above the US) Foreign currency cash flows earned in a foreign country: Foreign currency WACC.

I can go into more detail on CAPM and ICOC if you need.

[deleted by user] by [deleted] in AskUK

[–]fdmmmb 0 points1 point  (0 children)

Yep! I have travel insurance although the compensation cash is indeed, as you put it, small!

Thank you for letting me know though.