Capital Structure and Asset Beta

Paper Summary:

The paper focuses on Safeway, Choice Hotels and Dell Computer as
representatives of a national grocery chain, a hotel chain and a electronics producer and provides a brief overview of these companies. The paper explains the ideal capital structure and the asset beta for these companies.

From the Paper:

"Safeway (NYSE: SWY) is representative of a national supermarket chain. They operate in select markets coast-to-coast, and have stores in Canada and Mexico as well. Safeway has over 1700 stores. Safeway's beta is 0.99. The grocery business is non-cyclical due to the demand inelasticity for grocery items. In their regions of operation (west coast, Texas, Chicagoland and the Mid-Atlantic) their customer base is very broad, covering most consumer groups."

Sample of Sources Used:

• Betas, Balance Sheets, Income Statements and Business Descriptions on all three companies obtained July 30, 2008 from Reuters.
• Hatfield, Gay; Cheng, Louis; and Davidson, Wallace. (1994). The Determination of Optimal Capital Structure: The Effect of Firm and Industry Debt Ratios on Market Value. Journal of Financial and Strategic Decisions. Retrieved July 30, 2008 from http://www.studyfinance.com/jfsd/pdffiles/v7n3/hatfield.pdf

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