On April 16, 2020, Duff & Phelps held a webcast titled "Coronavirus: Cost of Capital Considerations in the Current Environment", which discussed many of the concepts outlined in this article in greater detail.

All rights reserved. Country Risk Premia analyzed each quarter, Country-level cost of capital data for over 175 countries, Country Risk Template - Estimate WACC for Multiple Countries, Full Tables - International Equity Risk Premia, Personal Training and Onboarding Assistance. Estimating the cost of capital is one of the most important decisions that corporate finance professionals make. Duff & Phelps Recommended U.S. Equity Risk Premium Increased from 5.0% to 6.0% Effective March 25, 2020, /insights/publications/cost-of-capital/us-equity-risk-premium-increased-march-25-2020, /-/media/assets/images/publications/featured-images/2020/dp-rec-change-erp.jpg, Governance, Risk, Investigations and Disputes. I would like to receive periodic news, reports, and invitations from Duff & Phelps. However, several economic and financial risk factors that we evaluate were already present during the week of March 9, 2020. Please try again later! A confirmation email has been sent to you. For over 20 years, our professionals have published books, created studies, provided recommendations and built tools to help businesses and valuation professionals calculate cost of capital. Learn more about the financial market and economic indicators taken into consideration when arriving at the Duff & Phelps recommended U.S. Equity Risk Premium and accompanying Normalized Risk-free Rate in the video provided on the left. Provides an array of consulting services to alternative investment managers and investors.

U.S. ERP Recommendations  |  Cost of Capital Products  |  Webcasts and Videos  |  Insights.

For instance, between its record high on February 19, 2020 and the bottom reached on March 23, 2020, the S&P 500 index fell by 33.9% in just 33 days. Based on this analysis, Duff & Phelps concluded on a normalized U.S. risk free rate of 3.0%.

Meanwhile, China is the more likely case to follow a V-shaped recovery. The new interactive module guides users through the process of quantifying global country risk when estimating cost of capital. See also, Levitz, Jennifer, Mike Cherney and Daniel Michaels, “U.S. All rights reserved. Provides global industry-level inputs needed to estimate cost of equity capital, weighted average cost of capital (WACC), and industry-level benchmarks that can be used to augment and support their own custom analyses. L-shaped: The most concerning of shapes, because it means that once the economy plunges, it stays down for a significantly long time. An online platform that guides you through the process of estimating cost of capital, a key component of any valuation analysis. CNBC.com, https://www.cnbc.com/2020/03/26/usa-now-has-more-coronavirus-cases-than-either-china-or-italy.html. Provides global industry-level inputs needed to estimate cost of equity capital, weighted average cost of capital (WACC), and industry-level benchmarks that can be used to augment and support their own custom analyses. We will maintain our recommendation to use a 6.0% U.S. ERP until there is evidence indicating equity risk in financial markets has materially changed. For instance, the decline in the 2020 real GDP growth estimates of 4.7% for the World Economy is based on the difference between -2.1% after COVID-19 and the 2.6% before COVID-19. The sharp reduction in oil prices was attributable at first to a price war between Saudi Arabia and Russia, which began on March 9, 2020 and continued until an agreement was reached on April 9, 2020. Duff & Phelps regularly reviews fluctuations in global economic and financial market conditions that warrant a periodic reassessment of the ERP and the accompanying risk-free rate. This annual publication incorporates the Duff & Phelps Risk Premium Report, previously published as a standalone report, along with the year-end data previously available in the discontinued Ibbotson® Stocks, Bonds, Bills and Inflation (SBBI ®) … Conversely, Information Technology appears to be the least impacted industry, even though earnings estimates are lower than they were back at December 31, 2019.

U.S. Maharashtra, India, Phone Location Duff & Phelps regularly reviews fluctuations in global economic and financial market conditions that warrant a periodic reassessment of the Equity Risk Premium (ERP) and accompanying risk-free rate, key inputs used to calculate the cost of equity capital in the context of the Capital Asset Pricing Model (CAPM) and other models used to develop discount rates. To assist in evaluating the impact of COVID-19 on expected cash flows, we assembled data on forecasted growth of real gross domestic product (GDP), as prepared by a variety of reputable sources, both before and after the COVID-19 outbreak.

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