Cost of Capital in the Current Environment
January 2024 Update“Global economic growth in 2023 handed a pleasant surprise to economists, thanks in part to a resilient U.S. economy and a decline in global energy prices. Although the U.S.
economy showed greater resilience than the Eurozone’s, real GDP growth in 2023 likely ended in a much better place than originally projected at the beginning of the year forboth geographies. Going forward, a scenario of soft landing has become more plausible, although real growth is expected to slow down in 2024 in most regions globally. The
good news is that despite the significant increase in interest rates in 2022 and 2023, economies and markets seem to have absorbed the hikes without major disruptions.
Inflation has decelerated significantly, at a faster pace than many anticipated, while long-term inflation expectations have also dropped materially, especially in Germany.
Investors are pricing significant policy rate cuts in 2024 for major economies, boosting confidence and leading to new record highs in some equity markets. This “risk-on” attitude
means equity risk premia is likely to come down, barring a major geopolitical event (e.g., escalation of the Middle East conflict) or other unforeseen materially negative event.

”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 January 31, 2024

Normalized
Risk-Free Rate

Data as of January 26, 2024

Kroll-Recommended
Equity Risk Premium% Change$30.0

After COVID-19Feb 2020 – Jan 2024

5.5%

Higher of3.0% orSpot**

to6.0%We recommend using the spot 20-year U.S. Treasury yield as the proxy for the riskfree rate, if the prevailing yield as of the valuation date is higher than ourrecommended U.S. normalized risk-free rate of 3.5%. This guidance is effective whendeveloping USD-denominated discount rates as of June 16, 2022, and thereafter.

**Bank of Japan$20.0

U.S. Federal Reserve

$10.0

$0.0

Sources: Capital IQ, FRED® Economic Data, Bank of England, Bank of Japan and European Central BankFor more information, visit: https://www.kroll.com/costofcapitalnavigator

Global Market VolatilityGlobal 10-Year Government Bond Yields

Data as of January 26, 2024

Stock Market Performance

Data as of January 26, 2024

Data as of January 26, 2024

80.9

Max during
COVID-19 crisis

82.7

87.5
85.6

20.1

Americas

VSTOXX® (Europe)

Max during
2008 global
financial crisis

23.5

13.3

13.6

Eurozone

Currentlevel2008 Global Financial Crisis$5.0*** German normalized risk-free rate and Eurozone equity risk premium (ERP) for use in
EUR-denominated discount rates from a German investor perspective. Our current
ERP recommendation is at the top of the range. Additional country risk adjustments
may be warranted when estimating discount rates for other countries in theEurozone.

Long-termaverage

COVID-19 Begins$15.0

We recommend using the spot 15-year German government bond yield as the proxy
for the risk-free rate, if the prevailing yield as of the valuation date is higher than ourrecommended German normalized risk-free rate of 3.0%. This guidance is effective
when developing EUR-denominated discount rated as of October 18, 2022, andthereafter.

VIX Index (U.S.)

European Central BankUSD
Trillion
USD21.3
21.3
Trillion

Global Credit Spreads

U.S.

CanadaBrazil

4.15%

3.54%

10.59%

EurozoneGermany

Netherlands

2.39%

2.36%

2.58%

FranceSpain

Italy

2.79%

3.21%

3.75%

Euro-DenominatedCorporate Credit Spreads

6.7%

Long-term
average

7.7%

3.7%

Current
level

3.6%

Sources: Capital IQ, FRED® Economic Data, Bloomberg
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. Corporate Index. 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 1995 to present for VIX daily series, 1999 to present for VSTOXX daily series, 1996 topresent for U.S. credit spread daily series, and 1998 to present for EUR-denominated credit spreadmonthly series.

U.S. and Eurozone Consumer
Sentiment vs. Business Confidence

108.1
BusinessConfidence

99.0
100.3

78.8
89.6
98.6
95.5

85.5

(1950–2023)

100.0(1985–2023)

100.0

S&P/ASX 200-5.6%

IBEX 35Japan

Australia
Spain

-8.7%

S&P TSX-9.5%

CAC 40

CanadaFrance-12.3%

DAX-12.9%STOXX® Europe 600

Germany
Europe-19.4%

S&P 500-19.8%MSCI ACWI

U.S.

World

CSI 300
China

2.31%

S&P 500

China

2.28%

7.21%

Japan

Singapore

South Korea

2.97%

27.4%

U.S.

India

4.25%

32.0%

Japan

3.42%

Germany

DAX

21.8%

MSCI ACWI

World

21.2%

IBEX 35
Spain

20.7%

CAC 40France

17.9%

IBOVESPA
Brazil17.5%

BSE Sensex

India

16.2%

STOXX® Europe 600

13.9%EuropeS&P TSX

9.0%

CanadaS&P/ASX 2007.3%

Australia

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

FTSE 100

Source: Capital IQ

2.5%

UK

CSI 300-13.9%

China

Long-Term Inflation Expectations and Real GDP Growth (Median)
Data as of January 30, 2024

(1985–2024)

100.0

-5.5%

0.91%

0.71%

Long-Term
Inflation
Expectations

101.0(1952–2024)

TOPIX

4.09%

Australia

Long-Term
Real GDP
Projected Growth

Consumer
Sentiment

Long-Term Avg.

0.9%

-5.1%

TOPIX

U.S.
Post-COVID-19(January 2024)

4.4%

SwedenData as of January 26, 2024Pre-COVID-19(February 2020)

India

Switzerland

5.1%

2.3%

BSE Sensex

UK

Since the Beginning of 2023

Max during
COVID-19 crisis

Europe – Other

18.8%

14.9%

4.7%

-21.6%

Asia Pacific

Max during
2008 global
financial crisis

BrazilUK

Data as of September 18, 2023

U.S. Corporate
Credit Spreads

IBOVESPAFTSE 100

Calendar Year 2022

(in EUR)

Eurozone ***
*

5.5%

63%
-6%
47%
85%

Bank of England$25.0
Assets Held by Central Banks (in USD trillions)U.S.

(in USD)Higher of
3.5% orSpot*

Germany

2.2%
1.8%

2.2%
1.2%

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, but
dropping significantly to 2.2% in January 2024.
Long-term real GDP growth expectations inGermany stood at 1.2% in January 2024.

Inflation estimates over the long term rose from2.0% in June 2020 to 2.4% in December 2022 andremained there through mid-September 2023.
However, estimates dropped to 2.2% in January
2024. Projected long-term real GDP growth in theU.S. stood at 1.8% in January 2024.

Sources: Michigan University’s Index of Consumer Sentiment (preliminary January 2024 reading),
OECD’s Business Confidence Index and European Commission business and consumer surveys [Thesame methodology that the European Commission uses to standardize its Economic Sentiment
Indicator (ESI) was applied to the Eurozone Consumer Confidence and Business Climate Indicator
series.] Business Confidence for the U.S. as of November 2023 and for the Eurozone as of December
2023.

Sources of underlying U.S. data: 1) Real GDP growth data was sourced from Blue Chip Economic Indicators, Blue Chip Financial Forecasts, Consensus Economics, IHS Markit (S&P Global Market Intelligence), 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 data from theFederal 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 January 26, 2024

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

Data as of January 30, 2024

2020
MarchWorld

4.4%

2021

7.2%

11.0%

8.1%

September

7.8%

8.6%

December

6.7%

8.2%

6.1%

8.2%

June

U.S.
2021

6.3

2021

5.8

2022

2025

2023

3.1 2.7 2024 2.7
2.3

2020

Canada-2.9

5.3

2022

2023

2024

2020

3.82025

1.9 2.4 1.6 1.6-2.22022
2023

2025

1.1 0.7 1.82020-5.020242021
March

5.9%

7.9%

4.7%

7.3%

3.9%

7.0%

March

3.6%

6.8%

June

3.6%

6.7%

September

3.5%

6.7%

December

3.5%

6.7%

June

September

December

2022

Eurozone

UK
2021

8.7

2021

5.9

2022

2022

4.3

3.4

2023

2020

2024

0.5 0.7

-6.1

2025

1.5

2020

June

2025
2024

0.5 0.4-10.4

Brazil

1.3

China

2023
March

2023

India
2021

2021

3.5%
3.6%

6.5%

2021

5.0

6.4%

September

3.8%

6.5%

Latest Available*

3.7%

6.4%

Source: U.S. Bureau of Labor Statistics and Eurostat* Data through December 2023 for the U.S. and November 2023 for the Eurozone.

9.1

8.52023
2022

2023

3.0 3.0
2020-3.620242025

1.6 2.1

2020

2.2

2022

3.0

5.22024

2022

2023

7.2 6.92025

2024

2025

6.3 6.5

4.6 4.3

2020

-5.8

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

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