Aswath Damodaran 177
Aracruz’s Cost of Capital
Levered Beta
Cost of
Equity
After-tax
Cost of Debt D/(D+E)
Cost of
Capital
In Real Terms
Paper &
Pulp 0. 7576 11. 46 % 3. 47 % 30. 82 % 9. 00 %
Cash 0 2. 00 % 2. 00 %
Aracruz 0. 7040 10. 79 % 3. 47 % 30. 82 % 8. 53 %
In US Dollar Terms
Paper &
Pulp 0. 7576 13. 46 % 4. 79 % 30. 82 % 10. 79 %
Cash 0 4. 00 % 4. 00 %
Aracruz 0. 7040 12. 79 % 4. 79 % 30. 82 % 10. 33 %
When computing cost of capital, we compute the cost both with cash as part of
the equation (in which case it is lower) and without cash.
