Hi all. Wanted to ask if this is a reasonable approach.
I am estimating FCFE of a firm (constant capital structure)
I am using CAPM to get cost of equity of a firm that has international brands.
Originally, I just used Damodaran’s ERP estimates weighted via firm EBITDA of each country’s operation. The resulting FCFE seems to be overstated and the resulting cost of equity seems to be understated.
I plan to add via the Beta approach additional country risk premium (also weighted), but multiplied by a factor to temper the increase. However, I just realized now that Damodaran’s ERP is derived from his estimates of country risk premium plus mature market premium… Is my method still reasonable, or will I just be incorporating country risk more than it should be?