Eye2theLongRun

Estimation is currently challenging…. as it ever is!

A few points and my current (as always subject to the Rev. Bayes) estimate for N.Z.:

1. the estimate is always expectational
2. most important not to get overly side tracked by the short run
3. most important not to confuse Govt “policy attempts” to set prices with what may happen

Thus I note:

Riskfree rate? 5 year govt stock may still be the best rough long run approximation. Say 4%

Equity Risk Premium (Rm – Rf)? Damodaran option estimate after tax and sovereign risk adjusted 4.7%

This gives us 8.7% as a market post investor tax based cost of equity capital for NZ. Say 9%.

For those interested in WACC, recent Commerce Commission work suggests that the average premium for corporate debt might be in the order of 2% at present, and observation of the NZX50 suggests a debt to total capital ratio of around 38%