A foreign subsidiary does not have an independent cost of capital. However, in order to estimate the discount rate for a comparable host-country firm, the analyst should try to calculate a hypothetical cost of capital. As part of this process, the analyst can estimate the subsidiary's proxy cost of equity by using the traditional equation: Define each variable in this equation and explain how the variable might be different for a proxy host country form compared to the parent MNE

Answer rating: 100% (QA)

When estimating the discount rate for a comparable hostcountry firm as a proxy for a foreign subsidiary an analyst may use the traditional equation to ... View the full answer