Dear Sir,
How would you suggest that one adjusts the cost of equity for a country like Libya due to the short term problems there? would you increase the CRP if you are doing a DCF based on a 10 year cash flow projection and by how much?

Question

Dear Sir, 
How would you suggest that one adjusts the cost of equity for a country like Libya due to the short term problems there? would you increase the CRP if you are doing a DCF based on a 10 year cash flow projection and by how much?

anonymous · Answer

Your question should come down to how to adjust the country risk premium of Libya. One way is to look to Libya sovereign rating but the rating agencies could be slow to react to those "short term problems (?)". May be it should be more interesting to turn to CDS market which would be adjusting more instanteneously but unfortunately which would be also more volatile and less stable. there is some kind of need of trade-off...