How do you add a country risk premium to cost of equity?

The simplest way is to add it on top of CAPM: the risk-free rate, plus beta times the equity risk premium, plus the country risk premium. With a 5% risk-free rate, a beta of 1.2, a 5% premium and a 3% country premium, cost of equity comes to 14%.

Some analysts multiply the country premium by beta instead, on the view that riskier stocks feel country risk more. That gives 5% plus 1.2 times 8%, or 14.6%. Others scale it by how much of the company's revenue comes from the risky country, so a firm earning half its sales there would add 1.5%.

Pick one approach and use it consistently, and keep your risk-free rate and cash flows in the same currency. The country risk premium entry explains where the number comes from, and the build-up method treats it as one more line item for private firms.