Citigroup SmithBarney (Reais). In a report dated June 17, 2003, Citigroup SmithBarney calculated a WACC for Petrobrs

Citigroup SmithBarney (Reais). In a report dated June 17, 2003, Citigroup SmithBarney calculated a WACC for Petrobrás denominated in Brazilian reais (R$).

Evaluate the methodology and assumptions used in this cost of capital calculation.

Petrobrás Petróleo Brasileiro S.A. or Petrobras is the national oil company of Brazil. It is publicly traded, but the government of Brazil holds the controlling share. It is the largest company in the Southern Hemisphere by market capitalization and the largest in all of Latin America. As an oil company, the primary product of its production has a price set on global markets—the price of oil—and much of its business is conducted the global currency of oil, the U.S. dollar.

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Risk-free rate (Brazilian C-Bond) 9.90% Petrobrs levered beta 1.40 Market risk premium 5.50% Cost of equity 17.60% Cost of debt 10.00% Brazilian corporate tax rate 34.00% Long-term debt ratio (% of capital) 50.60% WACC (R$) 12.00%