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Let’s say you’re valuing a company via DCF and so you need to figure out the target company’s cost of equity via CAPM. You’ve selected your comps, almost all of whom are US-based. But you’ve also got a british comp in there, who is a great comp. let’s further assume that the british comp does NOT have an ADR, so you can’t get a US-based beta for it. also, as you know, british comps trade based on a slightly different market, so their betas etc will be impacted by country-specific factors, investors, macroeconomic outlook etc. Clearly, cost of equity via CAPM assumes the US risk-free rate. What adjustment(s) if any, must we make to the British comp’s beta to make sure we are doing an apples-to-apples comparison? if your answer is that “it’s okay to mix apples and oranges in this case, because Britain isn’t very different from the US”, then let’s assume the company was based in Singapore or Russia – ie places with very different macroeconomic environments. Then, what would your answer be? Read More