15. BBVA Investment Bank. BBVA utilized a rather innovative approach to dealing with both country and currency risk in their December 20, 2004, report on Petrobrs. Evaluate the methodology and assumptions used in this cost of capital calculation.

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2003 2004 US 10 year risk-free rate (in US$) 4.1% 4.4% Country risk premium (in US$) 6.0% 4.0% Petrobrs premium (in US$) 1.0% -1.0% Brazil risk-free rate (in US$) 9.1% 7-4% Market risk premium (in US$) 6.0% 6.0% Petrobrs Beta 0.80 0.80 Cost of equity (in US$) 13.9% 12.2% 10-year (2004-2015) currency devaluation 2.50% 2.50% Cost of equity (in R$) 16.75% 4.44% Cost of debt after 35% tax (in R$) 5.5% 5.5% Long term equity ratio 69% 72% Long-term debt ratio 31% 28% WACC (in R$) 13.3% 12.0%