Question

Dear Mr. Damodaran,



I am a student at the BI Norwegian Business School, and have for some time now been using your website for studies. I am not a student of yours, but I am deeply impressed by your work as well as I enjoy reading your blog, and I therefore decided that I would ask you a few questions on the topic of valuation.


I am currently writing my Bachelor's Thesis as part of my Bachelor's Degree in Finance and Economics. In my paper I am valuating a private health care company with operations both in Norway (it is a Norwegian company) and Sweden. Because of that, I am having a bit

Answer 1

of difficulty with the valuation process. The company consists of subsidiaries who operates in the Norwegian and Swedish market for private health care.


Specifically, I am not sure how to handle the required rate of return using the CAPM, and then computing a WACC. I would really appreciate if you had time to answer a few questions, as I am sure that they are easy for you to answer.


First of all, because the company operates in two different countries, what do I do with the risk free rate? Seeing that the inflation, and thus the interest rates, are different; the risk free rate of bonds would also differ. Would it for example be possible to create a weighted average of the risk free rates (10 year bonds) based on how much the operations in each country contributes to the total income?


Secondly, what could be done with the tax rates when calculating the after-tax WACC? Would it be OK to find a weighted average here as well?