Campbell Harvey
Duke University, Durham, NC 27708
ABSTRACT
The goal of this paper is to provide the economic background for the International Cost of Capital and Risk Calculator (ICCRC). I review the current practice in estimating the cost of capital and show how the ICCRC works. Most of the discussion focuses on the Java implemented version which is available in www.duke.edu/~charvey. There is also some discussion of customized versions of the software in Excel. A long-standing problem in finance is the calculation of the cost of capital in international captial markets. There is widespread disagreement, particularly amoung practitioners of finance, as to how approach this problem. Unfortunately, many of the popular approaches are ad hoc and, as such, difficult to interpret. The ICCRC provides alternative methodology which has strong economic foundations.