Read the case study: Petrobrás of Brazil and the Cost

Read the case study: "Petrobrás of Brazil and the Cost of Capital" and address the following questions:
1. Why do you think Petrobrás' cost of capital is so high? Are there better ways, or other ways, of calculating its weighted average cost of capital?
2. Does this method of using the sovereign spread also compensate for currency risk?
3. The final quote on "one's view on the direction of the broad Brazilian market" suggests that potential investors consider the relative attractiveness of Brazil in their investment decision. How does this perception show up in the calculation of the company's cost of capital?
4. Is the cost of capital really a relevant factor in the competitiveness and strategy of a company like Petrobrás? Does the corporate cost of capital really affect competitiveness?
5. Are there assets that Petrobrás could privatize? Would that offset operation risk?
6. What kinds of transaction risk does Petrobrás have?
7. Given the high debt load of Petrobrás what are your recommendations to the company?
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...


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