UNIBANCO. UNIBANCO estimated the weighted average cost of capital for Petrobrs to be 13.2% in Brazilian reais

UNIBANCO. UNIBANCO estimated the weighted average cost of capital for Petrobrás to be 13.2%

in Brazilian reais in August of 2004. Evaluate the methodology and assumptions used in the 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 4.5% Cost of debt (after-tax) 5.7% Beta 0.99 Tax rate 34% Market premium 6.0% Debt/total 40% capital Country risk 5.5% WACC (R$) 13.2% premium Cost of equity (US$) 15.9%