Citigroup regularly performs a U.S. dollar-based discount cash flow (DCF) valuation of Petrobrs in its coverage. That DCF analysis requires the use of a discount

Citigroup regularly performs a U.S. dollar-based discount cash flow (DCF) valuation of Petrobrás in its coverage. That DCF analysis requires the use of a discount rate based on the company's weighted average cost of capital. Evaluate the methodology and assumptions used in the 2003 Actual and 2004 Estimates of Petrobrás' WACC below.

July 28, 2005 March 8, 2005 Capital Cost Components Risk-free rate Levered beta Risk premium 2003A 2004E 2003A 2004E 9.400% 1.07 5.500% 15.285% 8.400% 28.500% 6.006% 9.400% 5.500% 15.395% 8.400% 27.100% 6.124% 9.000% 1.091.08 5.500% 14.940% 9.000% 28.500% 6.435% 9.000% 1.10 5.500% 15.050% 9.000% 27.100% 6.561% Cost of equity Cost of debt Tax rate Cost of debt, after-tax Debt/capital ratio Equity/capital ratio WACC 32.700% 67.300% 12.20% 32.400% 67.600% 12.30% 32.700% 67.300% 12.10% 32.400% 67.600% 12.30%