Appropriate approach to estimate cost of equity

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A US-based retailer plans to expand its business to Indonesia and is considering to acquire a local retail chain. As the lead analyst in the valuation team, Jenny thinks that it is important to include country risk premium in estimating the Indonesian company's cost of equity. She also suggests that the yield spread between Indonesia government bond & US treasury bond with similar maturity is a good measure of country risk premium. I am consufed whether Jenny's approach is correct or not. If you agree, please explain the rationale for her approach; If you disagree, propose a more appropriate approach to estimate cost of equity and explain your rationale.

Reference no: EM132097103

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