Specific implication
Avoid using historical cost such as the historical interest rate.
Use market-value weights and forward-looking estimates of debt costs, equity costs, and tax rates.
Try to find companies that are comparable on important risk dimensions. These may include lines of business, international activity, competitive position, and strategic plans.
Look at both industry averages and specific comparables. If they differ, think about why.
The cost of equity (and cost of debt) used in a WACC calculation must be consistent with the weights used. If looking at comparable companies, check to see if they have similar capital structures. One technique is to compute WACCs for each company. Another approach tries to unlever costs of equity to adjust for financial risk. The first approach assures numbers are consistent but doesn’t directly address differences in debt policy. The second requires use of theoretical approximations.
Know your banker and debt markets well.
Try different methods to estimate cost of equity. Look at how sensitive your results are to these and your choice of comparables.
Costs of capital estimates are approximate. Narrow your range but don’t think you’ve got it exactly right.
There are two basic approaches. One is to estimate a cost of capital for each different currency, making sure to adjust for differential inflation among currencies. The second is to translate currency for cost of capital.