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Valuation: Measuring and Managing the Value of Companies, Sixth Edition
Chapter 23 Cross-Border Valuation
Solutions
1. The real risk-free rate will be the same in different countries. The nominal risk-free rate will
2. The main problem is that there will be a dispersion of expert forecasts, and each forecast will
have an error. One choice of a forecast is to use the forward rate, but there is a problem here in
3. Differences in the domestic industries of each country can explain most of the differences in risk
premiums in different international markets. From a purely geographical point of view, in other
4. A few conditions had more relevance in the past. As the world has developed, however, their
role has become much less important. One condition would be a local market that is not well
5. The manager should use a WACC that applies to the country of the subsidiary and not that of
6. There are two reasons for understanding the historical differences between GAAP and IFRS. The
most practical reason is that in assessing a firm and making forecasts, an analyst needs to look
7. The current, temporal, and inflation-adjusted current methods have differences that can make
each an appropriate choice based on the inflation rates in the different countries associated
with the cash flows. Moderate inflation in the country of the subsidiary allows an easy
adjustment using the current method. In that method, all items on the balance sheet except
equity are translated at the year-end exchange rate. Translation gains and losses are recognized
in the equity account. Translation of the income statement uses the average exchange rate for
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8. The spot rate should be used because the monetary authority’s restrictions make the foreign
