1. Using the data in Exhibits 1 and 2, estimate equity betas and asset betas for WFM, KR, SFM, and SVU using five years of returns (or from origination, in the case of SFM) and the value-weighted market index. How do the three companies asset betas differ? What might explain the differences in the three companys asset betas?

2. Estimate the cost of equity capital for WFM, KR, and SFM.

How does the estimated cost of equity compare to the average returns from the past 5 years?

How are expected returns different from average past returns?

Exhibit 1: Multiples Comparison of Whole Foods Markets with Competitors
	Whole Foods Markets (WFM)			Competitors
As of 6/15/2017	Pre-bid	At bid		Kroger Co (KR)	Sprouts Farmers Market (SFM)	Supervalu (SVU)
Price per share ($)	33.06	42.00		30.25	24.42	3.76
Number of shares (millions)	319.5	319.5		913	137	268
Stock market capitalization ($mm)	10563	13419		27618	3346	1008
Interest-bearing debt (book)	2107	2107		17141	553	1289
Enterprise value (market value)	12670	15526		44759	3899	2297
Key FY 2016 metrics:
Book value of assets	6341	6341		36505	1439	3580
Revenues ($mm)	15741	15741		27611	4046	12480
Earnings ($mm)***	507	507		1957	124	650
EPS	1.59	1.59		2.14	0.91	2.43
EBITDA*	1325	1325		4297	279	861
Cash flow from operations** ($mm)	1005	1005		4067	205	888
Key multiples:
Market value/Book value	2.0	2.4		1.2	2.7	0.6
Market value/Revenues	0.8	1.0		1.6	1.0	0.2
Enterprise value to EBITDA	9.6	11.7		10.4	14.0	2.7
Enterprise value to cash flow	12.6	15.4		11.0	19.0	2.6
P/E (price to EPS)	20.8	26.5		14.1	27.0	1.6
* Defined here as pre-tax income plus depreciation
** Defined here as PAT plus depreciation. SVU had a tax benefit.
*** Kroger Co's earnings include comprehensive income from non-controlling interests.
(Some figures are modified slightly for the case.)