Iwas doing valuationof acompany in emerging marketsand I have a question in mind but couldn't find a proper theory suggesting a solution.
Suppose, the company receives its revenue in US$currency and incurcosts in INR currency. The company's functional currency is INR so the revenues are converted for the projected period at the projected exchange rates for each year.
Due to non-availability of local companies I have to choose InternationalCost of Capital(ICOC). Now, when I calculatecost of equityfor the company I need to add Country Risk premium which embeds the impact of currencyexchange rate. Further, I foundDuff& Phelps article which says (1+CoE) * (Fisher Effect i.e. Inflation of INR vsUSD) but it doesn't tell any adjustment that needs to be done in Country risk premium. So it's more like counting the exchange rate impact twice. What should be done in this scenario, it will be highly appreciated if you can share you previous experience along with an article to support what you're suggesting.
(FYI: I know that I can keep the revenue in USD and convert costs to USD currency and discount at ICOC but what would you do in the above scenario other than this, how would you take the adjustment)
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