Return to Kroll: https://www.kroll.com/en/insights/publications/cost-of-capital

Cost of Capital in the Current Environment
June 2024 Update“Global economic growth in 2024 is continuing to show signs of resilience, despite the overhang of restrictive monetary policies. Economists are now expecting a soft landing forthe global economy, even though real growth is expected to moderate in major emerging markets such as China and Brazil. In contrast, the UK experienced a technical recession
at the end of 2023 and the Eurozone narrowly escaped one. Signs of a modest recovery are now surfacing in these economies and expectations of rate cuts are helping investor
sentiment. Inflation has decelerated significantly, at a faster pace than many anticipated, with ECB policy rate cuts projected to start in mid-2024, followed by the Bank ofEngland in the summer. In the U.S., while growth has been surprisingly resilient, inflation has been “stickier” than in Europe, leading expectations for Fed rate cuts to be pushed
further out to the end of the year and into 2025. Despite the prospect of higher-for-longer interest rates, the promise of significant productivity gains from generative artificial
intelligence has buoyed U.S. stock markets to new record highs. From a geopolitical standpoint, it is worth noting that 2024 is a year of presidential/parliamentary elections inmany countries around the globe, including but not limited to India, the UK and the U.S., which could give rise to unexpected instability as the year progresses.

”

Carla S. Nunes, CFA – Managing Director, Valuation Digital Solutions/Office of Professional Practice, Kroll

Kroll Cost of Capital Inputs

Total Assets Held by Major Central Banks Over Time

Data as of June 5, 2024Normalized
Risk-Free Rate

Data as of May 29, 2024

Kroll-Recommended
Equity Risk Premium% Change$30.0

After COVID-19

Feb 2020 – May 2024

U.S.

(in USD)Higher of
3.5% or
Spot*

5.0%

(in EUR)

Eurozone ***Bank of Japan$20.0

Higher of
2.5% orSpot**

59%
-10%
40%
76%

Bank of England

$25.0

5.5%

$15.0

6.0%

$10.0

European Central Bank
U.S. Federal Reserveto*

We recommend using the spot 20-year U.S. Treasury yield as the proxy for the risk-free rate,
if the prevailing yield as of the valuation date is higher than our recommended U.S. normalizedrisk-free rate of 3.5%. This guidance is effective when developing USD-denominated discountrates as of June 16, 2022, and thereafter.

**We recommend using the spot 15-year German government bond yield as the proxy for therisk-free rate, if the prevailing yield as of the valuation date is higher than our recommended
German normalized risk-free rate of 3.0%. This guidance is effective when developing EURdenominated discount rated as of March 31, 2024, and thereafter.

*** German normalized risk-free rate and Eurozone equity risk premium (ERP) for use in EURdenominated discount rates from a German investor perspective. Our current ERP
recommendation is at the bottom of the range. Additional country risk adjustments may be
warranted when estimating discount rates for other countries in the Eurozone.

USD 20.3 Trillion
COVID-19 Begins

2008 Global Financial Crisis

$5.0

$0.0

For more information, visit: https://www.kroll.com/costofcapitalnavigator

Sources: Capital IQ, FRED® Economic Data, Bank of England, Bank of Japan and European Central Bank

Global 10-Year Government Bond Yields

3.74%

BrazilChile

Mexico11.84%

6.02%

9.82%

Global Credit Spreads
Data as of May 29, 2024

U.S. Corporate
Credit Spreads

Max during
2008 global
financial crisis

EurozoneGermany

Netherlands

2.72%

2.69%

2.97%

France

Spain

Italy

3.17%

3.43%

3.92%

UK

Switzerland

Sweden

4.42%

0.89%

2.43%

Data as of May 29, 2024

2.38%

7.07%

Japan

Singapore

South Korea

3.56%

3.36%

1.09%

7.7%

VIX Index (U.S.)

80.9

87.5

Max during
COVID-19 crisis

82.7

85.6

Long-term
average

5.1%

2.2%

VSTOXX® (Europe)

Max during2008 global
financial crisis

18.8%

3.7%

Current
level

4.41%

Global Market Volatility

Euro-DenominatedCorporate Credit Spreads

6.7%

Long-term
average

India

China

Sources: Refinitiv (Brazil, Chile, India, Mexico), European Central Bank (Eurozone aggregate yield) and Capital IQ (other countries)

14.9%

Max during
COVID-19 crisis

Australia

Asia Pacific4.61%

Eurozone

CanadaEurope – OtherU.S.

Latin America

North America

Data as of May 29, 2024

20.0

Current
level

2.7%

23.4

12.9

14.2

Sources: FRED® Economic Data, Bloomberg

Source: Capital IQ

U.S. corporate credit spreads are based on the difference in effective yields between the ICE BofA U.S. High Yield Index and the ICE BofA U.S. CorporateIndex. Euro-denominated corporate credit spreads are based on the difference in effective yields between the Bloomberg Pan-European High Yield Index(EUR) and the Bloomberg Euro Aggregate Corporate Bond Index. Long-term averages are based on 1996 to present for U.S. credit spread daily series, and1998 to present for EUR-denominated credit spread monthly series.

Long-term averages are based on 1995 to present for VIX daily series, 1999 to present for VSTOXX daily series.

Stock Market Performance
Data as of May 29, 2024

BrazilIBOVESPA

-8.4%

1.0%
Australia

S&P/ASX 200

India

BSE Sensex

3.1%

4.9%
CanadaS&P TSX

5.3%
CSI 300

China

5.3%
FranceCAC 405.9%
UKEuropeWorld

STOXX® Europe 600

MSCI ACWIU.S.

S&P 500

Germany

Spain-11.4%FTSE 100

7.6%

9.0%

10.6%
DAX

10.6%

10.7%
IBEX 35

15.9%
Japan

TOPIX

3.8%
UK

FTSE 100

Australia

China

7.8%
S&P/ASX 200

CanadaEurope

STOXX® Europe 600

FranceCAC 40India

BSE Sensex

World

Germany

BrazilIBOVESPA

Spain

IBEX 35

U.S.

S&P 500

CSI 300

8.1%
S&P TSX

12.7%

16.5%

20.1%
MSCI ACWI

18.7%

20.3%
DAX

22.3%

22.8%

24.2%

25.1%
Japan

TOPIX

China

Cost of Capital in the
Current Environment - June
2024

-21.6%-19.8%-19.4%-12.9%-12.3%-9.5%

Year-to-Date 2024

CSI 300World

MSCI ACWIU.S.

S&P 500

EuropeSTOXX® Europe 600

Germany

Calendar Year 2023

DAX

FranceCAC 40

Canada-8.7%

Spain

S&P TSXIBEX 35-5.6%

Australia

S&P/ASX 200-5.5%JapanTOPIX

-5.1%

0.9%
UK

FTSE 1004.4%
BSE Sensex

India

4.7%
IBOVESPA

BrazilCalendar Year 2022

Source: Capital IQ

U.S. and Eurozone Consumer
Sentiment vs. Business ConfidenceLong-Term Inflation Expectations and Real GDP Growth (Median)
Data as of May 29, 2024

Data as of May 29, 2024

Consumer
Sentiment

Post-COVID-19(May 2024)

101.0

69.1

108.2
BusinessConfidence

99.0

93.0
98.6*

100.3

96.1

Long-Term Avg.
(1952–2024)

85.4(1985–2024)

100.0(1950–2023)

100.0(1985–2023)

100.0

Long-Term
Real GDP
Projected Growth

Pre-COVID-19(February 2020)

Long-Term
Inflation
Expectations

U.S.

* Latest data available is as of November 2023

Germany

2.3%
1.9%

2.1%
1.0%

Inflation estimates over the long term rose from
2.0% in June 2020 to 2.4% in December 2022 andremained there through mid-September 2023.
However, estimates dropped to 2.3% in May 2024.
Projected long-term real GDP growth in the U.S.
stood at 1.9% in May 2024.

Long-term inflation expectations in Germany surged
from 1.6% in June 2020 to 2.8% in December 2022,
decelerating to 2.7% in mid-September 2023, butdropping significantly to 2.1% in May 2024. Longterm real GDP growth expectations in Germany
stood at 1.0% in May 2024.

Sources: Michigan University’s Index of Consumer Sentiment, OECD’s Business Confidence Indexand European Commission business and consumer surveys [The same methodology that theEuropean Commission uses to standardize its Economic Sentiment Indicator (ESI) was applied to theEurozone Consumer Confidence and Business Climate Indicator series.] Business Confidence for theU.S. as of November 2023, since OECD has temporarily stopped updating the series.

Sources of underlying U.S. data: 1) Real GDP growth data was sourced from Blue Chip Economic Indicators, Blue Chip Financial Forecasts, Consensus Economics, S&P Global Market Intelligence (formerly IHS Markit), Federal
Reserve Bank of Philadelphia (Livingston Survey, and Survey of Professional Forecasters), and Oxford Economics. 2) Inflation expectations relied on the sources already listed under real GDP growth data, as well as datafrom the Federal Reserve Bank of Cleveland, the Federal Reserve Bank of Philadelphia (Aruoba Term Structure of Inflation Expectations), and the University of Michigan’s Surveys of Consumers Inflation Expectations.

U.S. vs. Eurozone Unemployment Rate

Real GDP Growth (%) Estimates (Median)

Data as of May 29, 2024

Sources of underlying German real GDP growth and inflation data: Consensus Economics, Economist Intelligence Unit, S&P Global Market Intelligence (formerly IHS Markit), International Monetary Fund, Oxford Economics
and PwC.

Data as of May 21, 2024

World2020
March

June

4.4%
11.0%

2021

7.2%

7.8%

8.6%

December

6.7%

8.2%

March

6.1%

8.2%

June

5.9%

7.9%

Canada

2021

6.3

2021

5.8

2022

8.1%

September

U.S.

2023

2024

2025

3.1 2.9 2.7 2.8

2020

2022

1.92020

-2.9

5.3

2023

20242.5 2.5

3.82025

1.8-2.22022
2023

2024

1.1 1.1

2020-5.02025

2.0

2021

September

4.7%

Eurozone

UK
2021

7.4%

8.7

2021

December

3.9%

5.9

7.0%

2022

3.6%

6.8%

June

3.6%

6.8%

September

3.5%

6.7%

December

3.5%

6.7%

3.5%

6.5%

3.6%

6.5%

4.3

3.4

2023

2020

March

2022

2022

2024

0.5 0.7

-6.1

2025

1.5

2025
2020

2023

2024

0.1 0.4

-10.4

1.3

2023
March

June

September

December

3.8%
3.7%

Latest Available*

3.9%

6.4%

Source: U.S. Bureau of Labor Statistics and Eurostat

2022
2023

2021

4.820222023

3.0 2.9
-3.6

6.5%

9.7

8.5

2020

3.8%

India

2021

6.5%

MarchChina
2021

6.5%

2024

* Data through April 2024

Brazil2024

2025

1.9 2.1

2020

2.2

2022

3.0

5.2

2024

2023

2024

2025
7.0 7.7 6.8 6.62025

4.7 4.4

2020

-5.8

Sources: OECD, International Monetary Fund, World Bank, Blue Chip Economic Indicators, Consensus Economics, Economic Intelligence Unit, Fitch Ratings, S&P Global Market Intelligence (formerly IHS Markit), Moody'sAnalytics, Oxford Economics and S&P Global Ratings. Some sources did not have data available for all countries and regions.

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