a) Use the CAPM to estimate the cost of capital for equity with the assumptions below. If you need to make additional assumptions, clearly state them in your answer.

b) Use the CAPM to estimate the cost of capital for equity with the assumptions below (in addition to the assumptions in the previous sub-question). If you need to make additional assumptions, clearly state them in your answer.

Question 3 (25 marks) Misty Bay Ltd is a wine maker that the private equity firm you work for is considering investing in. An abbreviated balance sheet and profit and loss statement for Misty Bay Ltd for the year ended 31 December 2019 is available see below. (All amounts are in millions of dollars.) Misty Bay Ltd Balance sheet as of 31 Dec 2019 Current Assets 2019 $mn 2 13 Cash Debtors Work in Progress Stock 1 8 Long term Assets Property, Plant and Equipment Vineyard developments 43 35 TOTAL ASSETS 102 Long term Liabilities Bank loans > lyr) Bonds issued and outstanding 30 20 Current Liabilities Bank loans (due lyr) Bonds issued and outstanding 30 20 Current Liabilities Bank loans (due