1. Why do think petrobra\'s cost of capital is so high, Are ther better ways or
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1. Why do think petrobra's cost of capital is so high, Are ther better ways or other ways of calculating its weighted average cost of capital? 2. Does the method of using the severeign spread also compensate for the currency risk? 3.The final quote on 'one's view on the direction of the broad Brazialian market suggests that Potential investorsconsider the relative attractivness of brazilin the investment decision . How does this perceptionshow up in the calculation of the company's cost of capital?Explanation / Answer
Why do think petrobra's cost of capital is so high, Are ther better ways or other ways of calculating its weighted average cost of capital Petrobras, unlike other oil producing multinationals (such as Exxon, BP, Shell,etc.) whose cost of capital ranges between of 7.6 and 9 percent, has a high cost of capitalbecause it lacks a strong international presence which would enable the company tosource capital in cheaper markets. 2. Does the method of using the severeign spread also compensate for the currency risk? ye as the US dollar is being used as the benchmark currency. Brazil’s creditworthiness is affected by factors such as; the levels of externaldebt, the pace of economic growth and political stability, among other factors. Currencyrisk is not the same as sovereign spread. 3.The final quote on 'one's view on the direction of the broad Brazialian market suggests that Potential investorsconsider the relative attractivness of brazilin the investment decision . How does this perceptionshow up in the calculation of the company's cost of capital? The cost of capital is calculated with the target solvency ratio (The cost of capital can not be decreased simply by increasing leverage since increasing leverage increases the risk (and cost) of both equity and debt
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