BBVA utilized a rather innovative approach to dealing with both country and currency risk in their December
Question:
BBVA utilized a rather innovative approach to dealing with both country and currency risk in their December 20, 2004, report on Petrobrás. Evaluate the methodology and assumptions used in this cost of capital calculation.
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Cost of Capital Component U.S. 10-year risk-free rate (in $) Country risk premium (in $) Petrobrás premium "adjustment" Petrobrás risk-free rate (in $) Market risk premium (in S) Petrobrás beta (B) Cost of equity (in S) Projected 10-year currency 2003 Estimate 4.1 0% 6.00% 1.00% 9.10% 6.00% 2004 Estimate 4A0% 4.00% 1.00% 0.80 13.9096 2.50% 16.75% 5.50% 0.80 12.20% 2.50% 14.44% 553% devaluation Cost of equity (in R$) Petrobrás cost of debt after-tax (in R$) Long-term equity ratio (% of capital) Long-term debt ratio (% of capital) WACC (in R$) 69% 31% 13.30% 72% 28% 12.00%
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Related Book For
Fundamentals of Multinational Finance
ISBN: 978-0205989751
5th edition
Authors: Michael H. Moffett, Arthur I. Stonehill, David K. Eiteman
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