Risk is a given in any investment. It is incorporated into valuation in the cost of equity and debt which flows into the discount rate. International projects are considered higher risk given the potential for political and/or currency fluctuations. Therefore, a country risk premium is added to the discount rates for international projects. But how will you estimate a country risk premium if your firm operates in different countries? This page looks at how you can estimate the country risk premium for a multinational firm with operations in multiple countries.
A global or multinational company earns revenues from multiple countries. Each of these countries could present a different risk profile. A simple method to establish the country risk profile for a multinational company could be to consider revenues generated from different countries and take a weighted average of the country risks in all the countries the company operations in.