Problem: Petrobras of Brazil
• Petrobras Board of Directors has hired to you to assess the company's cost of capital and asks you to address the following questions in your memo.
• Explain what is meant by the term "Weighted Average Cost of Capital (WACC)" and why the term should be of importance to the Board.
• Explain the difference between "sovereign spread" and "currency risk". Does the sovereign spread compensate for currency risk?
• Explain if the investor perception of Brazil has an impact on the calculation of Petrobras cost of capital. (Explain your answer in relation to the cost of capital)
• Explain if the cost of capital is a relevant factor in the competiveness and strategy of Petrobras. If your answer if affirmative, explain how the cost of capital impact affects competitiveness.
The response must include a reference list. Using one-inch margins, double-space, Times New Roman 12 pnt font and APA style of writing and citations.