An analyst wants to account for financial distress and market-capitalization as well as market risk in his cost of equity estimate for a particular traded company.

Which of the following models is most appropriate for achieving that objective? And Why?

• The capital asset pricing model (CAPM).
• The FamaFrench model.
• A macroeconomic factor model.

Provide arguments about why the above options are either the right or the wrong model in performing the analysis.