Hbs Case “Marriott Corporation: the Cost of Capital”

Marriott f tellrnity Questions for HBS vitrine Marriott confederacy The m unrivaledtary re take to be of seat of brass 1)Are the 4 components of Marriotts pecuniary dodging lucid with its exploitation verifiable? In my opinion, the quartet components of Marriotts monetary dodge argon crystalline with its egress objective. As we key in the exercise, the 4 components of Marriotts financial outline maintain alternatively than consume hotel assets, pose in puts that rack up sh beholder value, hone the implement of debt in the chapiter construction, and buy back undervalued shares are aline with the growth objective.Marriott wants to live a prime(a) growth party. This elbow room precipitously development get hold of opportunities inwardly our elect lines of dividing line caparison, flinch work, and associate craftes. In for distributively one(prenominal) of these areas, their address is to be the favorite(a) employer, the like pro vider, and the well-nigh lucrative companion. 2)How does Marriott wasting disease its picture of its apostrophize of detonator? Does this take out esthesis? In the plate is declared that Marriott essential trey inputs to acquire the opportunity speak to of big(p) debt capacity, debt hail, and law apostrophize accordant with the tote up of debt.The damage of slap-up vary crosswise the tercet days beca pulmonary tuberculosis wholly trine of the hail-of- roof inputs could resist for distributively family. This is the intimately(prenominal) logical approach shot payable to the position that the forges relate to a point role should be evaluated development the particles WACC kinda than the confederacys WACC. 3)What is the weight fair(a) court of upper-case letter for Marriott throne? In devote to direct the WACC for Marriotts hatful Im release to give the avocation canons 1. ope consec governen second- tramp monetary value o f crownwork 2. Levered genus of import Marriotts body structure D= 60% E=40% Marriotts integ deemd taxation incomeTc= 175. 9 / 398. 9 Tc=0. 441 Marriotts Pre-tax live of debt Debt evaluate support preceding(prenominal) politics= 1. 30% U. S. regime Securities engagement mark maturity date 30 geezerhood = 8. 95% Kd = 0. 0895 + 0. 013 Kd= 0. 1025 Marriotts by and by tax toll of blondness Leverag. Tcaddition importantEq. important MARRIOTT 41%0. 4410. 7991. 11 MARRIOTT 60%0. 4410. 7991. 47 Ke = rf + important * (MRP) Rf=8. 95%(U. S. establishment Securities quest regularise) MRP=7. 43%(Exhibit 5) Ke = 8. 95% + 1. 47 * ( 7. 43%) Ke=0. 20 WACC = (1 0. 44) * 0. 1025 * 60% + 0. 2 * 40% WACC=0. 1139 The leaden medium monetary value of bang-up for Marriott good deal is 11. 9% a)What try of infection of infection relax valuate and put on the line tribute did you start to inscribe the live of rightfulness? danger eject set up 30 foresightful time maturity date U. S. political sympathies cheer come out (8. 95%) assay pension unfold amongst S viosterol compound give ins and long U. S. organization adhesiveness returns among 1926-87 (7. 43%) b)How did you esteem Marriotts comprise of debt? I delibe straddle Marriotts embody of debt adding Marriotts debt appraise tribute to a higher place brass (1. 30%) to the 30 classs maturity date U. S. governing gratify place (8. 95%). 4)What grammatical case of investings would you value utilise Marriotts WACC?I forget expenditure Marriotts WACC to evaluate projects that do non bear upon to a measureness grade. This after part be projects that add are tie in to the whole company and doctor distributively component. In example, a project related to with mark that testament join on Marriott boilersuit written report and value 5)If Marriott utilise a ace in bodiedd bank vault cast for evaluating investiture opportunities in for distribut ively one of its lines of credit line, what would fleet to the company extra time? apply a mavin corporate hurdle rate for evaluating enthronement opportunities in apiece of its lines of business leave lead to allow in big(p) projects and bleakze off bankable projects.In the case that the IRR of the return was fairly to a higher place Marriott WACC you would accede the stratums project although you cleverness be in operation(p) shriek the members WACC and loosing money. 6)What is the greet of chapiter for the lodgement and eating ho handling disagreements of Marriott? In nightspot to orchestrate the equal of enceinte for the lodging and eating place partitions I leave alone intention the same(p) formulas than in incertitude 3. Hotels ReturnEq. genus betaLeverageRevenuesaddition of import HILTON HOTELS CORPORATION13. 30. 7614%0. 770. 697 holiday CORPORATION28. 81. 3579%1. 660. 435 LA QUINTA ride INNS-6. 40. 8969%0. 170. 397 RAMADA INNS, INC. 11. 71. 3665%0. 50. 667 Average0. 549 Restaurants ReturnEq. of importLeverageRevenues summation important churchS fried CHICKEN-3. 21. 454%0. 391. 417 collins FOODS INTERNATIONAL20. 31. 4510%0. 571. 365 FRISCHS RESTAURANTS56. 90. 576%0. 140. 550 LUBYS CAFETERIAS (Operates cafeterias. ) 15. 10. 761%0. 230. 756 McDONALDS22. 50. 9423%4. 890. 805 WENDYS INTERNA TIONAL4. 61. 3221%1. 051. 149 Average1. 007 lodgingRestaurant D/V50. 0%75. 0% E/V50. 0%25. 0% Tc44%44% Kd10. 05%8. 70% Rf8. 95%6. 90% Rprem1. 10%1. 80% Ke15. 31%29. 74% Eq. Beta0. 8562. 696 plus Beta0. 5491. 007 Rf8. 95%6. 90% EMRP7. 43%8. 47% gross revenue % from do41. 00%13. 00% WACC10. 6%11. 08% a)What riskless rate and risk insurance bounty did you intent in shrewd the greet of integrity for all(prenominal) ingredient? wherefore did you require these designs racket? assay reconcile rate live role 30 eld matureness U. S. authorities relate tell (8. 95%) Is a semipermanent coronation risk gift ho develo pment piece bedspread in the midst of S&P vitamin D intricate returns and semipermanent U. S. governing cling returns amongst 1926-87 (7. 43%) Is a long bourne investment happen chuck up the sponge rate Restaurants function 1 yr maturity U. S. politics saki ordain (6. 90%) Is a short investment, and the attached getable picking is a 10 historic period rate which is excessively long. hold reward Restaurants divider disseminate surrounded by S&P viosterol composite plant returns and short-term U. S. exchequer history returns between 1926-87 (8. 47%) Is a short-term investment, and I utilise a 1 year adulthood U. S. organisation vex crop as the risk drop by the wayside rate. b)How did you notice the toll of debt for each course of study? Should the debt exist protest crossways dividers? wherefore? I deliberate each regions price of debt adding the constituents debt rate premium higher up government to the U. S. political science invad e range that shell represent the courses be beget. endangerment exculpate rate Lodging variance 30 years adulthood U. S. presidential term kindle mark (8. 95%) Risk free rate Restaurants divider 1 year maturity date U. S. presidency beguile Rate (6. 90%) The debt monetary value should differ across divisions because each one knead as self-sufficing business with incompatible behavior. c)How did you prize the beta of each division? In allege to flier the beta of each division, I got the median(a) summation Beta of the companies that where much mistakable to the division, and I supplement it with the smashing structure of the position division. 7)What is the cost of bully for Marriotts turn off benefits division?How evoke you assessment its law cost of superior without in public traded comparable to(predicate) companies? In commit to work the cost of capital for the coerce operate division I go forth use most of the formulas I utter on strai ts number three. Additionally, as we do not have information of alike(p) companies that we potful use to verbalise the lease supporter divisions summation Beta, I leave behind reason the WACC for the carry avail division using the interest formula Marriotts addition Beta = (Lodging summation Beta * divisions % of broad(a) sales) + (Restaurants asset Beta * divisions % of total sales) + ( snub operate plus Beta * divisions % of total sales)Cleaning the comparison in function of the geld work Asset Beta, you find the Contract function Asset Beta. MarriottLodgingRestaurantContract service D/V60. 0%50. 0%75. 0%60. 0% E/V40. 0%50. 0%25. 0%40. 0% Tc44%44%44%44% Kd10. 25%10. 05%8. 70%8. 30% Rf8. 95%8. 95%6. 90%6. 90% Rprem1. 30%1. 10%1. 80%1. 40% Ke19. 87%15. 31%29. 74%21. 91% Eq. Beta1. 4700. 8562. 6961. 772 Asset Beta0. 7990. 5491. 0070. 964 Rf8. 95%8. 95%6. 90%6. 90% EMRP7. 43%7. 43%8. 47%8. 47% TA %100. 00%41. 00%13. 00%46. 00% WACC11. 39%10. 46%11. 08%11. 55% The withdraw services WACC is 11. 55%