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
Petrobras? Does the corporate cost of capital really affect competitiveness?

5. Are there assets that Petrobras 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):

1. Cover page
2. Introduction
1. Identify the key problems and issues in the case study.
2. Formulate and include a thesis statement, summarizing the outcome of your analysis
in 1–2 sentences.
3. Background

1. Set the scene: background information, relevant facts, and the most important issues.
2. Demonstrate that you have researched the problems in this case study.
4. Financing

1. Cost of capital
2. Currency risks
3. Other considerations?
5. Risk considerations

1. Operational risk
2. Transaction risk
3. Other issuess?
6. Recommendations

1. Determine and discuss specific strategies for accomplishing the proposed solution.
2. If applicable, recommend further action to resolve some of the issues
3. What should be done and who should do it?

References page