Cost of Equity Based on Stock Indices

The cost of equity is determined on the basis of the Capital Asset Pricing Model (CAPM). The risk-free rate, the market risk premium, the beta factor and the country risk premium are used as the key input parameters.

For the estimation of the risk-free rate (base interest rate), we follow the current recommendation KFS/BW 1 E 7 issued by the Expert Senate for Business Administration of the Austrian Chamber of Tax Advisers and Auditors. The base interest rate is derived on a forward-looking basis from the term structure of German government bonds. The simplified application of the 30-year spot rate constitutes a permissible approximation in this respect.

For the derivation of the market risk premium, we refer to the calculation of implied market returns for the ATX, DAX, STOXX Europe 600 and MSCI World equity indices. These are determined using a multi-period dividend discount model (DDM) based on data provided by the financial information services provider S&P Capital IQ. Starting from the respective prevailing base interest rate, we derive the corresponding market risk premiums from this.

The beta factors are calculated on the one hand using weekly returns over a two-year period, and on the other hand using monthly returns over a five-year period. The unlevered beta factors are derived with reference to the STOXX Europe 600. The beta factors are unlevered by applying the Harris/Pringle formula. The leverage ratio (debt-to-equity ratio) is defined as the ratio of long-term debt to the market value of equity.

In addition, we take into account the country risk premium for Austria, derived on the basis of five-year credit default swaps (CDS) and multiplied by an equity multiplier.