11. JPMorgan. JPMorgan's Latin American Equity Research department produced the following WACC calculation for Petrobrs of Brazil versus Lukoil of Russia in their June 18, 2004, report. Evaluate the methodology and assumptions used in the calculation. Assume a 28% tax rate for both com- panies.

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Petrobrs Lukoil Risk free rate 4.8% 4.8% Sovereign risk 7.0% 3.0% Equity risk premium 4.5% Market cost of equity 16.3% 13.5% Beta (relevered) 0.87 04 Cost of debt 8.4% 6.8% Debt/capital ratio 333 475 WACC 14.7% 12.3%