Problem:
David McClemore, the CFO of Ultra Bread, has decided to use an APT model to estimate the required return on the company's stock. The risk factors he plans to use are the risk premium on the stock market, the inflation rate, and the price of wheat. Because wheat is one of the biggest costs Ultra Bread faces, he feels this is a significant risk factor for Ultra Bread. How would you evaluate his choice of risk factors? Are there other risk factors you might suggest? Please explain in detail and also provide step by step solution.