Desc Introduction and background We are conducting an analysis of Marriott Corporation for calculating the hurdle rates at each of the firm's three divisions--lodging division, restaurant division and contract service division.
Get Full Essay Get access to this section to get all help you need with your essay and educational issues. Marriott uses these estimates to operate its four financial strategies.
These are managing rather then owning hotel assets, investing in projects that increase shareholder value, optimizing the use of debt in the capital structure and repurchasing undervalued shares.
If the company uses its overall WACC it may have divisions accept projects with returns below their respective WACC which will result in losses and vice versa.
To calculate the WACC a risk free rate was used of 8. A risk premium of 7. To unlever the equity beta of 1. Cost of debt was calculated by multiplying the cost of fixed rate debt by fraction of debt at the fixed rate and adding it to the cost of floating rate debt multiplied by fraction of debt at the floating rate.
The WACC was calculated by taking the WACD and multiplying it by debt percentage of capital, 1 minus the tax rate and our expected return and adding it to cost of equity multiplied by equity percentage of capital.
The WACC is 8. By using a single WACC we ignore the fact that each division has its own beta and capital structure. This fact also involves the different betas and capital structures of the firms used to compare each division.
It is difficult and inherently inaccurate to compare firms with Marriott as a whole because it is not as exact and is easier to find companies to compare with individual divisions.
Each division also creates different percentages of sales and different profits. When calculating the WACC on a divisional level it is necessary to do so using individual betas and capital structure according to each division.
The betas are found in exhibit 3 so we can compare them to similar firms. These are used to find a weighted average beta for each division. Since each firm has a different capital structure it is necessary to unlever betas before calculating the weighted average betas for each division.
The unlevered beta is multiplied by 1 plus the debt to equity ratio then multiplied by 1 minus the tax rate. The levered betas for lodging and restaurant divisions are 2. The cost of equity for both was calculated by adding the risk free rate to levered beta multiplied by the market premium.
This was used because it reflects returns of large companies such as Marriott and the rates of government T-bills.Marriott Corporation: The Cost of Capital. April Executive Summary Determining the appropriate cost of capital for new investment projects for a diversified company like the Marriott Corporation is not an easy endeavor.
However, it. Mar 24, · Marriott cost of capital case Overview Marriott Corporation is a leader in the lodging and food services industry with profits of $ million and $ in sales Words: — Pages: 6.
Marriott Corporation: The Cost of Capital Problem statement To find out a suitable Hurdle rate, to be used as a discount rate for cash inflows, to evaluate various Marriott Corporation Cost of Capital Case Analysis.
Uploaded by. jen Marriott Corp Case. Uploaded by. CelinaL. Marriot - Final Uploaded by. anon_ 5/5(12). Case 1 FIN Team 4: Jesse Galindo, Sulabh Gupta, Maggie Jones, Wale Olukanmi Marriott Corporation: The Cost of Capital Executive Summary J.
Willard Marriott started Marriott Corporation in with a root beer stand, expanding it into a leading lodging and food service company with sales of over $6 billion by Cost of Capital – Marriott as a Whole There are several ways to approach Amorist’s cost of capital as an entire firm. One way is to use CAMP to find its cost of equity, long-term interest rates for the cost of debt, and weigh according to its capital structure to find WAC.
The Cost of Capital (Abridged) xls file, Marriott Corp.: The Cost of Capital (Abridged) excel file, Subjects Covered Capital costs by Richard S. Ruback Source: HBS Premier Case Collection 10 pages. Publication Date: Mar 24,