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?

3. Estimate WFMs weighted average cost of capital.

I have data to upload for practice problems.

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

* Defined here as pre-tax income plus depreciation ** Defined here as PAT plus depreciation. SVU had a tax benefit. *** Kroger Cos earnings include comprehensive income from non-controlling interests. (Some figures are modified slightly for the case.)

Exhibit 2: Returns to Grocery Companies and the Market June 2012 - May 2017

Month-End Date

Value-Weighted WFM KR SFM SVU Market Index

06/29/2012 07/31/2012 08/31/2012 09/28/2012 10/31/2012 11/30/2012 12/31/2012 01/31/2013 02/28/2013 03/28/2013 04/30/2013 05/31/2013 06/28/2013 07/31/2013 08/30/2013 09/30/2013 10/31/2013 11/29/2013 12/31/2013 01/31/2014 02/28/2014 03/31/2014 04/30/2014 05/30/2014 06/30/2014 07/31/2014 08/29/2014 09/30/2014 10/31/2014 11/28/2014 12/31/2014 01/30/2015 02/27/2015 03/31/2015 04/30/2015 05/29/2015

7.73% 5.36% -3.71% -4.40% 5.42% 1.01% 0.82% 5.66% -2.68% 7.14% -1.51% 4.64% -0.21% -0.84% 5.80% 6.46%

-11.04% 5.99% 1.32% 13.45% 2.04% 3.74%

17.44% -1.63% -0.73% 2.58%

8.16% 13.69% -5.09% -6.42% 11.09% 10.22% 7.91% 6.20%

-10.34% -2.16% 2.17% -5.32% -9.42% -8.68% 3.43% 16.63%

-6.18% 4.08%

-1.76% 5.48% -23.06% 4.05% 1.02% 3.54%

-0.73% -0.91% 2.38% 4.42% -2.33% 2.00% 3.20% 7.13% 24.66% 7.75% 2.84% 7.30% 3.58% 7.54% 8.44% 3.31% -7.81% 7.74%

-8.05% -10.11% -13.65% 5.91%

20.10% 3.76% -17.85% 1.56% -7.00% 9.04% -7.55% -11.27% -15.23% 20.74% -6.75% 1.41% -6.04% 0.14% 9.21% 6.89% 7.15% 1.10% -4.29% -9.21% -6.24% -10.04% -9.12% -16.93% 3.58% -3.41% 18.40% 10.19% -14.25% 24.91% 1.97% -3.34% -11.79%

14.60% -52.32% -3.64% 1.26% 29.05% -23.47% 3.78% 58.30% 1.53% 26.95% 15.87% 10.62% -3.72% 28.78% -10.49% 14.78% -14.58% -8.25% 13.02% -20.71% 11.94% 5.72% 2.19% 6.87% 10.04% 11.56% 4.14% -6.39% -3.47% 8.46% 3.63% 0.41% 1.44% 17.71% -24.42% 0.46%

3.82% 1.03% 2.63% 2.65% -1.41% 0.62% 1.25% 5.41% 0.83% 3.53% 1.49% 1.91% -1.50% 5.27% -2.57% 3.75% 3.99% 2.49% 2.61% -3.00% 4.62% 0.45% 0.17% 2.02% 2.79% -2.05% 4.02% -2.51% 2.12% 2.12% -0.36% -2.72% 5.59% -1.04% 0.87% 1.03%

06/30/2015 07/31/2015 08/31/2015 09/30/2015 10/30/2015 11/30/2015 12/31/2015 01/29/2016 02/29/2016 03/31/2016 04/29/2016 05/31/2016 06/30/2016 07/29/2016 08/31/2016 09/30/2016 10/31/2016 11/30/2016 12/30/2016 01/31/2017 02/28/2017 03/31/2017 04/28/2017 05/31/2017

-4.05%

-7.71% -10.00%

-0.40% 8.23% -11.81%

-7.51% -8.38% 1.00% 13.97% -2.59% -10.63% -8.34% -12.86% 7.26% -8.50%

-9.66% 2.28% -5.45% 0.89% -1.32% -32.89% -1.12% 12.31% 25.24% 12.72% -3.50% -12.67%

7.40% -7.95% -7.51% 1.94% 1.00% 3.39%

-2.59% 12.30% -8.34% -8.94%

7.26% -14.03% -9.66% 8.16% -5.45% 0.65% -1.32% -16.06% -1.12% -3.57% 25.24% 2.12%

-1.93% 1.21% -6.00% -3.37% 7.40% 0.24% -2.23% -5.70% 0.07% 7.05% 1.18% 1.43% 0.31% 3.87% 0.28% 0.30% -2.16% 4.04% 1.88% 2.22% 3.26% 0.21% 0.96% 0.93%

-2.99% 4.55% -5.34% 4.80% -2.70% -0.09% 14.92% 11.07%

-12.10% 6.82% -0.64% -6.09% 11.24% -0.60% -4.81% -0.33% -6.24% -0.21% 7.42% 1.22% -1.30% 1.49% -3.10% 22.85% -3.79%

-7.22% 3.10% -4.16% -7.48% 1.34% 2.88% -7.07% -6.08% -7.22% 4.38% 4.65% 6.84% -1.59% -6.01% -7.26%

0.54% -3.50% 6.22% 0.84% 7.40% -6.10%

Exhibit 3a: Whole Foods Markets (WFM) Bond and Tax Data

Moody's Rating Baa3 S&P Rating BBB-

Yield (3/31/2017) 4.32% Coupon Interest Rate 5.20%

WFM Marginal Tax Rate 35%

Exhibit 3b: U.S. Treasury Rates

Time to Maturity Yield

1mo 3mo 6mo 1yr 2yr 3yr 5yr 7yr 10 yr 20 yr 30 yr

0.90% 1.01% 1.12% 1.20% 1.35% 1.48% 1.74% 1.96% 2.15% 2.53% 2.79%