Compute the company VITA LIFE SCIENCES LIMITED (VLS) cost of equity using CAPM.

Show the complete calculation process and how you acquire the values to be used in the model. Justify your choice of the risk-free rate, market risk premium and the company beta value. State the cost of equity and comment on the limitation of using that value directly, in relation to the imperfections of the CAPM.

Hint: The justifications here are more important than the numerical number.

State your choice and why you go with that option.

Risk free rate: many proxies for the risk-free rate. Which one do you choose and why your choice is reasonable?

Market risk premium: keep in mind that this is not the current market return over the risk free rate. It should be the historical average. Or you may find a reasonable value used in the literature.

Beta: You can estimate the beta value of the company yourself in a regression model, or quote a reasonable beta value from some reliable source. Or you can do both. Bonus marks will be offered if a regression is conducted!