In this chapter, we described how to estimate a companys WACC, which is the weighted average of its costs of debt, preferred stock, and common equity. Most of the data we need to do this can be found from various data sources on the Internet. Here we walk through the steps used to calculate Minnesota Mining & Manufacturings (MMM) WACC.

Once again we can use the CAPM to estimate MMMs cost of equity. From the Internet, you can find a number of different sources for estimates of betaselect the measure that you think is best, and combine this with your estimates of the risk-free rate and the market risk premium to obtain an estimate of its cost of equity. (See the Taking a Closer Look problem in Chapter 8 for more details.) What is your estimate for MMMs cost of equity? Why might it not make much sense to use the DCF approach to estimate MMMs cost of equity?