Aswath Damodaran 349
Analyzing Aracruz Cellulose’s Optimal Debt Ratio
! Aracruz Cellulose, the Brazilian pulp and paper manufacturing firm, reported
operating income of 887 million BR on revenues of 3176 million BR in 2003.
This was significantly higher than it’s operating income of 346 million BR in
2002 and 196 million Br in 2001.
! In 2003 , Aracruz had depreciation of 553 million BR and capital expenditures
amounted to 661 million BR.
! Aracruz had debt outstanding of 4 , 094 million BR with a dollar cost of debt
of 7. 25 %. Aracruz had 859. 59 million shares outstanding, trading 10. 69 BR
per share.
! The beta of the stock is estimated, using comparable firms, to be 0. 7040.
! The corporate tax rate in Brazil is estimated to be 34 %.
Aracruz was affected by both operating problems at its plant and the plunge in
the price of paper and pulp during the year.
