How does this perception show up in the calculation of the firm ’s cost of capital

How does this perception show up in the calculation of the firm ’s cost of capital

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Activity #4: Submission

Please click here to see the grading rubric that will be used to assess the learning outcomes. You will also be assessed on the Institutional Learning Outcome of Quantitative Reasoning.

For this assignment, Read the case study: “Petrobrás of Brazil and the Cost of Capital” that begins on page 409. On this assignment you will be assessed on what you have learned in Units 3 and 4.

Read the material at the following website to learn how to do a Case Study Analysis: http://www.mhhe.com/business/management/thompson/11e/case/prepare2.htm

Do some additional research on the economic situation in Brazil and also the issues of corruption that plagued Petrobras. You may find some helpful information here: What is the Petrobras scandal that is engulfing Brazil? Retrieved from: https://www.ft.com/content/6e8b0e28-f728-11e5-803c-d27c7117d132

Rapoza, K. (6/20/2016). Why Brazil’s Petrobras Should ‘Privatize’ Its Pre-Salt Oil Assets. Forbes.com.

https://www.forbes.com/sites/kenrapoza/2016/06/20/why-brazils-petrobras-should-privatize-its-pre-salt-assets/#1ae6acf91331

As you write your paper for a case study, you need to 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?

Your paper should be between 6-8 pages long. This does not include the cover page or the reference page.

The following is a general guideline for the format of your paper (you must have the cover page and the reference page in addition to the 6-8 pages of content):

Cover page
Introduction
Identify the key problems and issues in the case study.
Formulate and include a thesis statement, summarizing the outcome of your analysis in 1–2 sentences.
Background
Set the scene: background information, relevant facts, and the most important issues.
Demonstrate that you have researched the problems in this case study.
Financing
Cost of capital
Currency risks
Other considerations?
Risk considerations
Operational risk
Transaction risk
Other issuess?
Recommendations
Determine and discuss specific strategies for accomplishing the proposed solution.
If applicable, recommend further action to resolve some of the issues
What should be done and who should do it?
References page

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