Aswath With globalization of revenues globalization of risk

Aswath Damodaran 29 4.6: With globalization of revenues… globalization of risk Proposition 1: There is more risk in operating in some countries than in others and the risk premium should reflect this additional risk. One approach to estimating this additional risk premium is to do the following: • Start with the default spread for the country in question • Scale up the default spread to reflect the additional risk of equity Country Risk Premium = Default Spread * ( σ Equity/ σ Government Bond ) Country Risk Premium Brazil = 2.00% (33%/22%) = 3.00% Proposition 2: Risk comes from your operations and not your country of incorporation. Developed market companies can be heavily exposed to emerging market risk, just as emerging market companies can find ways to reduce their exposure to emerging market risk. One simple proxy is to look at the revenues generated in a country, relative to the average company in that market. • Proportion of Chippewa s revenues from Brazil = 20% • Average Brazilian company s revenues from Brazil = 77% Lambda Chippewa = 20%/ 77% = .26

Aswath Damodaran 30 Country Risk Premiums January 2011 Angola 11.00% Botswana 6.50% Egypt 8.60% Mauritius 7.63% Morocco 8.60% South Africa 6.73% Tunisia 7.63% Austria [1] 5.00% Belgium [1] 5.38% Cyprus [1] 6.05% Denmark 5.00% Finland [1] 5.00% France [1] 5.00% Germany [1] 5.00% Greece [1] 8.60% Iceland 8.00% Ireland [1] 7.25% Italy [1] 5.75% Malta [1] 6.28% Netherlands [1] 5.00% Norway 5.00% Portugal [1] 6.28% Spain [1] 5.38% Sweden 5.00% Switzerland 5.00% United Kingdom 5.00% Canada 5.00% United States 5.00% Argentina 14.00% Belize 14.00% Bolivia 11.00% Brazil 8.00% Chile 6.05% Colombia 8.00% Costa Rica 8.00% Ecuador 20.00% El Salvador 20.00% Guatemala 8.60% Honduras 12.50% Mexico 7.25% Nicaragua 14.00% Panama 8.00% Paraguay 11.00% Peru 8.00% Bahrain 6.73% Israel 6.28% Jordan 8.00% Kuwait 5.75% Lebanon 11.00% Oman 6.28% Qatar 5.75% Saudi Arabia 6.05% United Arab Emirates 5.75% Australia 5.00% New Zealand 5.00% Bangladesh 9.88% Cambodia 12.50% China 6.05% Fiji Islands 11.00% Hong Kong 5.38% India 8.60% Indonesia 9.13% Japan 5.75% Korea 6.28% Macao 6.05% Mongolia 11.00% Pakistan 14.00% Papua New Guinea 11.00% Philippines 9.88% Singapore 5.00% Sri Lanka 11.00% Taiwan 6.05% Thailand 7.25% Turkey 9.13% Albania 11.00% Armenia 9.13% Azerbaijan 8.60% Belarus 11.00% Bosnia and Herzegovina 12.50% Bulgaria 8.00% Croatia 8.00% Czech Republic 6.28% Estonia 6.28% Hungary 8.00% Kazakhstan 7.63% Latvia 8.00% Lithuania 7.25% Moldova 14.00% Montenegro 9.88% Poland 6.50% Romania 8.00% Russia 7.25% Slovakia 6.28% Slovenia [1] 5.75% Ukraine 12.50%

Aswath Damodaran 31 Estimating lambdas: Tata Group Tata Chemicals Tata Steel Tata Motors TCS % of production/ operations in India High High High Low % of revenues in India 75% 88.83% 91.37% 7.62% Lambda 0.75 1.10 0.80 0.20 Other factors Gets 77% of its raw material from non- domestic sources, Recently acquired Jaguar/Land Rover, with significant non- domestic sales While its operations are spread all over, it uses primarily Indian personnel