Cost of Capital in the Current Environment
June 2023 Update“Although at a slower pace, major central banks are continuing to hike interest rates to tame high inflation. Headline inflation appears to have peaked, but core
inflation (i.e., excluding the volatile energy and food prices) continues to be stubbornly high. Economists have upgraded real growth expectations for 2023 relative tothe beginning of the year, partly due to China’s reopening (after ending its zero-COVID-19 policy) and warmer weather that helped lower energy prices.
Nevertheless, several countries are still expected to fall into recession in 2023 or in early 2024. In fact, Germany and the Eurozone are already in technical recession(i.e., two consecutive quarters of contraction). However, global financial markets are generally pricing a soft landing rather than a deep and prolonged recessionary
period. Amidst this uncertain environment, cost of capital estimates are now similar to levels observed around the Global Financial Crisis of 2008-2009.

”

Carla S. Nunes, CFA – Managing Director, Kroll

Kroll Cost of Capital Inputs

Total Assets Held by Major Central Banks Over TimeData as of June 14, 2023

Normalized
Risk-Free RateU.S.

(in USD)

After COVID-19

Feb 2020 – June 2023

76%-1%
62%
102%

Bank of England

5.5%

Bank of Japan
European Central Bank
U.S. Federal Reserve

5.5%

Higher of
3.0% orSpot**(in EUR)% Change

Kroll-Recommended
Equity Risk Premium

Higher of
3.5% or
Spot*

Eurozone ***Data as of June 14, 2023

USD 23.1 Trillion

COVID-19 Begins

to6.0%

2008 Global Financial Crisis*

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.

**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.

*** 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.
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 Volatility

Global 10-Year Government Bond YieldsData as of June 14, 2023

Max during
COVID-19 crisis

82.7

87.5
85.6

20.2

23.7

13.9

Eurozone

14.2

Global Credit Spreads

Brazil

BSE Sensex

3.83%

3.40%

11.19%FTSE 100EurozoneGermany

Netherlands

2.55%

2.45%

2.80%

France

Spain

Italy

3.42%

India

Long-term
average

7.7%

3.8%

Current
level

UK

Switzerland

Sweden3.4%

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-5.6%

IBEX 35JapanSpainS&P TSXCanada

CAC 40-9.5%

France-12.3%

DAX-12.9%STOXX® Europe 600-19.4%

S&P 500-19.8%MSCI ACWI

Germany
Europe

U.S.

World

CSI 300

4.31%

1.01%

2.42%

Australia

China

2.47%

7.01%

Japan

Singapore

South Korea

2.98%

0.46%

21.3%

Japan

DAX

17.1%

Germany

India

3.98%

China

TOPIX

5.1%

2.8%

TOPIX

-8.7%

Since the Beginning of 2023

6.7%

Asia Pacific

Max during
COVID-19 crisis-5.1%-21.6%
Europe – Other

18.8%

UK

3.99%

Euro-DenominatedCorporate Credit Spreads

14.9%

4.4%
0.9%

CanadaData as of June 14, 2023

Max during
2008 globalfinancial crisis

4.7%

U.S.

2.94%

U.S. Corporate
Credit Spreads

IBOVESPA
BrazilCalendar Year 2022

80.9

Currentlevel

Data as of June 14, 2023

VSTOXX® (Europe)

Max during
2008 global
financial crisis

Long-term
average

Data as of June 14, 2023

Americas

VIX Index (U.S.)

Stock Market Performance

3.67%

IBEX 35

14.6%

S&P 500

13.9%

CAC 4013.2%

MSCI ACWI

12.2%

Spain
U.S.

FranceWorldSTOXX® Europe 600

9.4%

EuropeIBOVESPA

8.5%

Brazil

BSE Sensex

3.9%

S&P TSX

3.3%

FTSE 100

2.0%

India

CanadaUK

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

CSI 300-0.2%

Source: Capital IQ

ChinaLong-Term Inflation Expectations (Median)
Data as of May 31, 2023

Data as of June 14, 2023

Pre-COVID-19(February 2020)

Consumer
Sentiment

Post-COVID-19(June 2023)

101.0
107.9

BusinessConfidence

99.0
100.3

59.2
86.9
98.9
101.9

Long-Term Avg.

U.S.

Germany(1952–2023)

85.7(1985–2023)

100.0(1950–2023)

100.0(1985–2023)

100.0

2.4%

2.6%

Inflation estimates over the long term rose from2.0% in June 2020 to 2.9% in October 2022 butdeclined to 2.4% at the end of December 2022
and remained at that level in May 2023.

Long-term inflation expectations surged from
1.6% in June 2020 to 2.8% in October 2022
and stayed at that level at the end of December
2022 but declined to 2.6% in May 2023.

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.]

Sources of underlying U.S. data: Blue Chip Economic Indicators; Blue Chip Financial Forecasts, Consensus Economics, IHS Markit (S&P Global Market Intelligence), Federal Reserve Bank of Cleveland, Federal Reserve Bank ofPhiladelphia (Aruoba Term Structure of Inflation Expectations, Livingston Survey, and Survey of Professional Forecasters), Oxford Economics 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 June 14, 2023Sources of underlying German data: Consensus Economics, Economist Intelligence Unit, IHS Markit (S&P Global Market Intelligence), International Monetary Fund, Oxford Economics and PwC.

Data as of June 15, 2023

2020
March
June
September
December

4.4%
11.0%
7.9%
6.7%

7.1%
8.0%
8.7%
8.1%

6.0%
5.9%
4.7%
3.9%

8.1%
7.8%
7.4%
7.0%

World

U.S.

2021

Eurozone

2021

2021

5.9

6.0

2022

3.1

2020

2023

2024

2.2 2.4

5.3

2022

2.1

2020

-2.8

-3.220232024

1.3 1.02022

3.52023

2020

0.8

-6.2

2024

1.22021
March
June
September
December

China

3.6%

6.8%

3.6%
3.5%

6.7%
6.6%

3.5%

6.7%

March

3.5%

6.6%

Latest Available*

3.7%

6.5%

June
September
December

9.1

8.4

2023

2020

2.2

UK

2021

2021

2022
March

India

2022

5.5

7.0

2024

4.9

2021

2022
2023

6.0

7.6

2024

6.4

2022

4.1

3.0

2020

2020

-5.9

-11.0

2023

0.3

2024

1.0

2023

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

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.

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