Citigroup regularly performs a U.S. dollar-based discount cash flow (DCF) valuation of Petrobrs in its coverage. That

Citigroup regularly performs a U.S. dollar-based discount cash flow (DCF) valuation of Petrobrás in its coverage. That DCF analysis requires the use of a discount rate based on the company's weighted average cost of capital. Evaluate the methodology and assumptions used in the 2003 Actual and 2004 Estimates of Petrobrás' WACC below.

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July 28, 2005 March 8, 2005 Capital Cost Components Risk-free rate Levered beta Risk premium 2003A 2004E 2003A 2004E 9.400% 1.07 5.500% 15.285% 8.400% 28.500% 6.006% 9.400% 5.500% 15.395% 8.400% 27.100% 6.124% 9.000% 1.091.08 5.500% 14.940% 9.000% 28.500% 6.435% 9.000% 1.10 5.500% 15.050% 9.000% 27.100% 6.561% Cost of equity Cost of debt Tax rate Cost of debt, after-tax Debt/capital ratio Equity/capital ratio WACC 32.700% 67.300% 12.20% 32.400% 67.600% 12.30% 32.700% 67.300% 12.10% 32.400% 67.600% 12.30%