Choosing Peer Companies:

1. Select peer companies for Whole Foods from Exhibit 5. Justify your choices.
(qualitative, 5 points)

Cost of Equity:
2. Calculate the cost of equity for companies in Exhibit 5. Use the set of peer companies
identified before to calculate Whole Foods' cost of equity. (quantitative, 5 points)

DCF analysis:
3. Calculate share price using the DCF method (and the assumptions provided in the case
Supplement Exhibit in the Excel file accompanying the case). If you need additional
assumptions, but they are not provided in the case, make your assumptions and justify
them. (quantitative, 20 points)

Return on Capital:
4. Calculate ROC = EBIT*(1-tax rate)/(Net PP&E + Net Working Capital). Compare it
with the cost of equity, and comment on what this implies about valuation.
(quantitative, 5 points)

Scenario analysis:
5. A) Consider a steady-state growth of 2% instead of 3.4%. B) Assume that the forecasted
EBITDA margin is 9.4% in 2014 and constantly drops by 0.5% a year until 4.9% in
2023. Conduct four scenario analyses considering the combinations of base-case
assumptions and the variations in steady-state growth rate and EBITDA margin.
Explain the finding. (quantitative, 10 points)

EBITDA multiple:
6. Calculate Enterprise value to EBITDA multiple for companies in Exhibit 5. Based on
your calculations, do you think Whole Foods is overvalued or undervalued? You need
to identify the company’s peer group and justify your choice. (quantitative, 5 points)
7. One of your peers argues that since we are interested in comparing the stock market
valuation of Whole Foods to other firms, we should use the Market Cap of Equity
divided by EBITDA and not Enterprise value to EBITDA. Do you agree or disagree?
Why? (qualitative, 5 points)

Recommendation:
8. Do you recommend buying or selling Whole Foods based on your analysis?
(qualitative, 5 points)

Both the presentation and the report write-up will be graded. Each has 20 points.