13. Citigroup Smith Barney (dollar). Citigroup regularly performs a U.S. dollar-based discounted cash flow (DCF) valuation of Petrobrs in its coverage. That DCF analysis requires the use of a discount rate which they base on the company's weighted average cost of capital. Evaluate the methodology and assumptions of the 2003 Actual (2003A) and 2004 Estimates (2004E) of Petrobrs's WACC.

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July 28, 2005 Report March 8, 2005 Report 2003A 2004E 2003A 2004 Risk-free rate 9.4% 9.4% Risk-free rate 9.0% 9.0% stevered beta 107 109 Levered beat 1.08 31.10 Risk premium 5.5% 5.5% Risk premium 5.5% 5.5% 5.5% Cost of equity 15, 2% 15.3% Cost of equity 14.9% 15.0% Cost of debt 8.4% 8.4% Cost of debt 9.0% 9.0% Tax rate 285% 271% Tax rate 28.5% 27% Debt/capital Debt/capital ratio 32.7% 32.4% ratio: 33.4% 33-3% WACC 2.2% 12.3% WACC 12.1% 12.3%