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 company's asset betas 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 Estimate WFM's weighted average cost of capital Before Amazon's bid for WFM on June 15, 2017, WFM's stock was selling at $33 06 per share Use your WACC estimate and the cash flow projections in Exhibit 4 to determine the terminal growth rate (g) for all years beyond 2021 that is reflected in a price of $33 06 per share Is this a reasonable growth rate g It is possible that WFM's cash flow projections are overly optimistic Suppose investors believed that each of WFM's cash flow projections should be reduced by 12 What growth rate g would be implied by a stock price of $33 06 per share Using the WACC from Q3 and the growth rate estimate from Q4a, consider Exhibit 5 What percentage increase in revenue growth from 2017 2021 would justify an offer price of $42 00 per share Alternatively, what percentage decrease in costs from 2017 2021 would justify an offer price of $42 00 per share As noted in the case, Amazon's market capitalization increased by $11 34 billion on June 16, 2017 Noting that this increase was similar to the $13 7 billion purchase price, a CNBC reporter argued that, Amazon got Whole Foods essentially for free Did Amazon get Whole Foods essentially for free How do you interpret the fact that Amazon's stock valuation increased by $11 34 billion on the day that its WFM acquisition was announced Suppose the increase in Amazon's stock valuation (by $11 34 billion) was due to its announced acquisition of WFM Consider question 5 again By how much did investors think Amazon would be able to increase WFM's revenue growth and or decrease costs From this analysis, do you think Amazon overpaid for Whole Foods Alternatively, should Whole Foods shareholders have demanded a higher price for their shares

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Using the data in Exhibits 1 and 2, estimate equity betasandasset 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 company's asset betas?
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?
Estimate WFM's weighted average cost of capital.
Before Amazon's bid for WFM on June 15, 2017, WFM's stock was selling at $33.06 per share. Use your WACC estimate and the cash flow projections in Exhibit 4 to determine the terminal growth rate (g) for all years beyond 2021 that is reflected in a price of $33.06 per share.
Is this a reasonable growth rate g?
It is possible that WFM's cash flow projections are overly optimistic. Suppose investors believed that each of WFM's cash flow projections should be reduced by 12%. What growth rate g would be implied by a stock price of $33.06 per share?

Using the WACC from Q3 and the growth rate estimate from Q4a, consider Exhibit 5. What percentage increase in revenue growth from 2017-2021 would justify an offer price of $42.00 per share? Alternatively, what percentage decrease in costs from 2017-2021 would justify an offer price of $42.00 per share?
As noted in the case, Amazon's market capitalization increased by $11.34 billion on June 16, 2017. Noting that this increase was similar to the $13.7 billion purchase price, a CNBC reporter argued that, "Amazon got Whole Foods essentially for free."
Did Amazon get Whole Foods "essentially for free"? How do you interpret the fact that Amazon's stock valuation increased by $11.34 billion on the day that its WFM acquisition was announced?
Suppose the increase in Amazon's stock valuation (by $11.34 billion) was due to its announced acquisition of WFM. Consider question 5 again. By how much did investors think Amazon would be able to increase WFM's revenue growth and/or decrease costs?
From this analysis, do you think Amazon overpaid for Whole Foods? Alternatively, should Whole Foods shareholders have demanded a higher price for their shares?