Module II· WACC & Capital StructureAdvanced

Question

How do you calculate WACC for a multinational group with significant international operations?

Answer

Three options:

Single WACC (home currency): convert all cash flows into the home currency and apply a home-currency WACC with a revenue-weighted country-risk premium. Simple, but ignores FX-risk discounting.
Multi-WACC (by region): discount USD cash flows with a USD WACC and home-currency cash flows with a home-currency WACC, then consolidate the separate EVs at spot FX. Theoretically cleaner.
Damodaran approach: weight the ERP by revenue share per region.

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Example

60% domestic revenue × 6.0% ERP + 30% US × 5.5% ERP + 10% China × 7.5% ERP = a revenue-weighted ERP of 6.0%. IB standard: method (1) with ERP weighting.

Pitch tip

For large-cap multinationals with 50%+ foreign revenue, always show a multi-country ERP — a single-country assumption is too simplistic.

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