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Calculate cost of equity capital for jlb logistics

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Reference no: EM132968243

Consider the following information for JLB Logistics, which is an Argentinian-based transport company. JLB does logistics only within Argentina, but its shareholders are from all over the world. The risk-free rate of return in Argentina is 5% p.a. and the world risk-free rate is 3% p.a. The beta of JLB Logistics with the Argentinian national market portfolio is 1.2 and against the world market portfolio is 0.90. The returns on the Argentinian market portfolio and the world market portfolio average 15% and 10% per annum, respectively and have a correlation of 0.8. The variance of the world market portfolio is 0.2. The Argentinian government does not restrict capital flows into and out of the country, but there are some transactions costs associated with these flows.

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Problem 1: Calculate an appropriate cost of equity capital for JLB Logistics. In your answer carefully justify your approach. Show all working. Use dot points where necessary.

Reference no: EM132968243

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