JPMorgan. JPMorgans Latin American Equity Research department produced the following WACC calculation for Petrobrs of Brazil versus

JPMorgan. JPMorgan’s Latin American Equity Research department produced the following WACC calculation for Petrobrás of Brazil versus Lukoil of Russia. Evaluate the methodology and assumptions used in the calculation. Assume a 28% tax rate for both companies.

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Petrobrs Lukoil Risk-free rate 4.8% 4.8% Sovereign risk 7.0% 3.0% Equity risk premium 4.5% 5.7% Market cost of equity 16.3% 13.5% Beta (relevered) 0.87 1.04 Cost of debt 8.4% 6.8% Debt/capital ratio 0.333 0.475 WACC 14.7% 12.3%