Cost of Capital Estimation

Estimate the weighted average cost of capital of $3$M under the following assumptions.

Assumptions:

$1.$ Cost of debt is $2\mathrm{.}79\%.$

$2.$ Assume the weight of debt is $49\mathrm{.}62\%$; the firm has no preferred stocks.

Requirements:

$1.$ Use daily price data of January $31,2016$ to December $31,2018,$ and the Fama$-$French

three factors daily loading during the same window to estimate the beta coefficients of

the market premium, size premium and valuation premium for $3$M$.$

$2.$ Using the daily factor loadings between January $1,2019$ and June $30,2019,$ and your

estimated coefficient to forecast the daily cost of equity of $3$M between January $1,2019$

and June $30,2019.$ Note that, the forecasted return is a daily return estimation. You

should take the average daily cost of equity and annualize it to g e t annual cost of

equity, and apply it to the WACC formula.