Cross-border Discounted Cash Flow Valuation
摘要
In cross-border discounted cash flow (DCF) valuation, theorists and practitioners face more problems than in national valuation. Although it is indicated in the literature that the value of a firm is independent of the used currency, it is ambiguous whether spot or forward exchange rates should be used. Furthermore, the derivation of the corresponding cost of capital considering the correlation between exchange rate risk and a firm’s business risk in a consistent global capital market model is unclear, and the implementation of cross-border valuation in a two-phase model with a coherent growth rate is largely neglected. This paper develops a consistent framework for cross-border DCF valuation in a two-phase model focusing on an unlevered firm. Based on a sound analysis of the multi-period global capital asset pricing model, we derive valuation approaches in foreign and home currency with the corresponding costs of capital, considering the correlation between exchange rate risk and a firm’s business risk. Afterwards, we illustrate the transfer of the valuation approaches to a levered firm with active and passive debt management. Finally, we discuss the implications of the different valuation approaches from both theoretical and practical perspectives.