Petrobras and cost of capital

Masters
Essay
Finance & Accounting
Pages 12 (3012 words)
Download 0
Petrobras and Cost of Capital Insert Name Insert Grade Course Insert Tutor’s Name 30 October 2012 Q1. Why Petrobras’ Cost of Capital Is So High and Ways or Other Ways of Calculating Its Weighted Average Cost Of Capital Cost of Capital Cost of capital is in essence the lowest yield an investment project must produce in order to cater for the costs of financing (Eun 2009)…

Introduction

Petrobras, therefore, was operating in a higher risk environment due to Brazil’s economic turbulence. The cost of debt for any given company is the cost of raising extra revenue by issuing the debt. Likewise, the cost of equity refers to that extra revenue associated with issue of the equity shares. The cost of capital therefore is derived from the average value of issuing the two in the proportion capital they present and this is what is referred to as the WACC (weighted average cost of capital) as to be discussed later in this paper. For a company like Petrobras, the financing costs can be derived by use of the WACC. The major players in the multinational oil industry as indicated in exhibit 1 of the case have almost a similar cost of capital ranging from 7.6% of BP to 9.0% of ocean energy indicating an average difference of 1.4%. Petrobras’ cost of capital is further up at 15% reflecting a massive difference of 6%. This is largely attributed to the company’s distinct domestic involvement in terms of its operations. The company is largely owned by the government and hence it was solely producing for a Brazilian market in the quest to eliminate its over dependence on international oil imports. ...
Download paper
Not exactly what you need?

Related papers

The weighted average cost of capital of the company. Vagabond plc.
Increasing level of debts increases the financial risk of a company which eventually increases the cost of equity as well. The weighted average cost of capital of highly geared company is higher as compared to the others. …
The cost of equity capital and the CAPM
The three most popular methods include: dividend growth model, capital asset pricing model and the arbitrage pricing model. Dividend growth model Organizations utilize the cash generated for two purposes: they either reinvest it in the growth or new projects of the organization or pay some amount as dividend to the common stockholder. The Dividend growth model is based on this premises that a…
The Capital Structure Decision and the Cost of Capital
The products include dolls and accessories, vehicles, games, puzzles, as well as play sets. The company’s popular toy brands include the Barbie dolls, Polly Pocket, Little Mommy, Monster High, BabyGear, WWW Wrestling figures, Fisher-Price, CARS, Toy Story, Max Steel, and Batman. The company sells it toy products in physical stores as well as online stores. Based on the module discussions…
Capital Structure Decision and the Cost of Capital
About These Firms Headquartered in California USA, eBay Inc. is an online auction website that was started in September 2005. You can buy almost anything on eBay, but it has to be legally admissible and not dangerous or restricted items. People bidding for items on eBay can use auction price listings, fixed price format or fixed price format with best offer. Presently eBay operates in around 30…
The Cost of Capital
Richard Brealey (2001) mentions cost of capital represents the interest paid for the borrowed funds. Cost of capital can also include focusing on Capital Asset Pricing Model (Sheridian, Martin & Keown, 2010). The formula determines the appropriate expected return of alternative projects. The cost of capital is the amount that the investor has to pay in order to generate a series of future dividend…
Capital
The prices of the Australian goods exports have decreased since May, due to the decrease in the price of crude oil, iron ore, etc. The Australian dollar price has appreciated over three months, despite the deterioration in the global economy and fragile financial condition. This study aims at evaluating the decision of Reserve Bank of Australia (RBA) for not changing the cash rate until December.…
Cost of Capital
Cost of capital is the minimum returns that a company can give shareholders on their investments and accordingly the company has to earn the minimum returns. If merging happens between one company that has high cash flows and another company that has low internally generated cash flows, then such merger can reduce the cost of capital. Introduction In today’s economic world, mergers and…