4. Is the cost of capital really a relevant factor in the competitiveness and strategy of a company like Petrobrs? Does the corporate cost of capital really affect competitiveness? Petrobrs stands out in terms of deep water technology... but currently lags in the area of cost of capital. We believe that in the long term, if Petrobrs is to become a competitive player in what looks to be the future in underwater fuel exploration, it would be headed in the right direction by expanding internationally, securing its presence in the Golden Triangle, and lowering its cost of capital. WACC reduction could be immediate. If Petrobrs were to acquire one of the North American independents-which we estimate on average have a WACC in the range of 6% to 8%-it could raise debt at the acquired company and subsequently lower its WACC in the short term. Petrobrs could even cancel some of its own debt and/or issue new debt through the newly acquired entity. We've seen other savvy Latin compa- nies (ie., Cemex via its Spanish subsidiary Valenciana) do this successfully in the past. -"Foreign Expansion Makes Sense at theRight Price," Morgan Stanley Equity Research, January 18, 2002, p. 4