Malaysia’s country risk premium equals 8.41% and the cost of equity for this project equals 18.65%.

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Expert Solution

If a company in Malaysia is planning for a project in Malaysia itself, then the company has to take only cost of equity for discounting the future cashflows which is used for a capital budgeting decision.

If a foreign company is investing in Malaysia to start a project, then he has to consider 27.06% (18.65%+8.41%) while discounting. This because, now the foreign company is exposed to the malysian country risk. Hence, we should add that.

jeff jeffy answered 2 years ago

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