...1 Marriott Corporation: Cost of Capital Analysis In this paper, I shall attempt to determine the optimal cost of capital for Marriott Corporation using the WACC method and compare it against the cost of capital of a division with the firm to determine the implications of using a “firm wide” cost of capital Cost of Capital for the firm Based on the data given in the case, the beta equity for Marriott Corporation is currently set at 1.11. However, given the changes in the debt component in Marriott’s capital structure over the years, it is essential that we re-calculate the actual value of βequity using the unlevered beta βasset. For this purpose, we first use the average Debt/Total capital ratio for Marriott over the past 5 years as 0.497. Since Debt/Capital for the past 5 years is 0.497, the average D/E for this period is 0.988 (=0.497/0.503). Using the formula for unlevered beta, the beta for the asset can be calculated as, ( ) = as, . Using the target debt to capital ratio for Marriott as 0.60, we can re-calculate the equity ( ) Since we have the βequity, we can calculate the cost of equity using the CAPM as, Requity = Rf + βequity*(Rm – Rf) From the data, we use Rf as 8.95% and the equity risk premium as 7.43% (average spread between S&P 500 and long term US bonds). Substituting these values, we get the equity cost of capital as, Requity = .0895 + 1.273*(0.0743) = 18.40% To calculate cost of debt, we consider the spread over the long term US government bond...
Words: 670 - Pages: 3
...interviewed a hotel executive to determine the company’s (i.e. hotel’s) perspectives on sustainability. The business professional I interviewed was Mr. XYZ, the Executive Director of Ramada Inn - American City. Mr. XYZ has Post-Graduate Diploma in Business Management as well as degrees in Software Engineering and Systems Analysis. He has 10 years of work experience in Marketing Fast Moving Consumer Goods (FMCG) and 15 years of experience in Hotel Management. The interview occurred on the premises of Ramada Inn – American City on MM/DD/YYYY from 5:30 – 6:30 p.m. Ramada Inn is affiliated with the Wyndham Hotel Group, one of the largest hospitality groups in the world with businesses across six continents. As such, Ramada has been around for more than 50 years and has nearly 900 hotels in about 50 countries across the world. Although the owners and franchisees have lot of flexibility in the way they run their daily operations, they have to follow certain policies that distinguish the Ramada Brand (like free internet access) and also follow some basic rules and policies of the Wyndham group. I had reviewed the company website for information in this regards and found Wyndham’s take on Sustainability and the “Wyndham Green” program. No additional information as regards sustainability was found on the Ramada Worldwide website. With this background, I asked Mr. XYZ to define sustainability from his company’s perspective. According to Mr. XYZ, for his company, “sustainability” generally...
Words: 2290 - Pages: 10
...MarriotMarriott Corporation: The Cost of Capital T c=income taxes of 1987 / income before income taxes of 1987 = 175.9/398.9 = 44% Step 1:From the Exhibit 3 ß equity for each firm in this industry are below Marriot Corporation 1.11; Hilton Hotels Corporation .76 ; Holiday Corporation 1.35 La Quinta Motor Inns .89; Ramada Inns, Inc 1.36. Step 2: For each firm in the industry, to estimate unlevered using the equity estimate: equity = [1 + (1-TC)Debt/Equity]unlevered unlevered of Marriot= 1.11/[1+(1-.44)*.41]=.90 unlevered of Hilton= 0.76/[1+(1-.44)*.14]=.70 unlevered of Holiday= 1.35/[1+(1-.44)*.79]=.94 unlevered of La Quinta= 0.89/[1+(1-.44)*.69]=.64 unlevered of Ramada= 1.36/[1+(1-.44)*.65]=.997 Step 3: Take an industry average of the unlevered estimates as estimate of firms unlevered (.90 +.70+.94+.64+.997)/5 = .84 Step 4: Use firm’s target D/E ratio and unlevered estimate to calculate equity equity = [1 + (1-TC)Debt/Equity]unlevered equity = [1 + (1-.44)*.41]*.84= 1.03 Step 5: Calculate the R equity using CAPM The risk free rate was 4.58%, and the equity risk premium was 7.43% for average from 1926-87 R equity =r f + ß(r premium) = 4.58%+1.03*7.43%= 12.23% Step 6: Calculate [Debt/(Debt + Equity)] and [Equity/(Debt + Equity)] V=D+E D/V=.41 E/V=1-D/V=1-.41= .59 Step 7:Use formula above to calculate r WACC r debt= r f + r debt premium = 8.72%+1.10% = 9.82% WACC=rdebt*(1-Tc)(D/V)+requity*(E/V)=9.82%*(1-0.44)*.41+12.23%*0.59 =...
Words: 296 - Pages: 2
...1. Ramada Demonstrates Its Personal Best In 1996 the latest D. K. Shifflet survey of customer satisfaction in the hospitality industry showed mid-tier hotels continuing their downward trend in perceived customer service, reflected by more and more respondents giving ratings on customer service in the 7 or lower range on Shifflet’s 10-point scale. While Ramada’s satisfaction rates held steady, “It was only a matter of time before we experienced the problem,” says Tim Pigsley, director of operations for Ramada Franchise Systems (RFS). Shifflet research highlighted three critical areas for study that could influence customer satisfaction: hiring (finding the best people to deliver Ramada’s brand of exceptional service), training (giving employees the tools to deliver exceptional service), and motivation (providing the impetus for Ramada employees to deliver exceptional service). Unlike some of its competitors, RFS is a totally franchised system. In such an environment, not only must headquarters contend with the variable human factor of all service operations, but additionally, RFS must contend with differing “exceptional service” standards among owners of the nearly 900 Ramada properties. “Due to the franchised system of property management, we needed for each management team and each employee to be committed to the change—to buy in to any new program—whatever shape it would take,” explains Pigsley. “We wanted to learn and borrow from the best so we started with Disney. In...
Words: 8961 - Pages: 36
...calculate NPVs of the project. When the single corporation hurdle rate (13.2%) is applied to each of its lines of businesses, some projects that are supposed to have negative NPV will be invested while other projects that are supposed to have positive NPV will be neglected. For example, the lodging sector has a discount rate of 11.97%, and by applying the corporation hurdle rate of 13.2%, the company will mistakenly pass some lodging projects that can generate positive NPV. iv. What is the cost of capital for Marriott’s three divisions? ■Lodging -Hotel- | βE | D/D+E | E/D+E | βA | Hilton Hotels Corporation | 0.88 | 14% | 86% | 0.76 | Holiday Corporation | 1.46 | 79% | 21% | 0.31 | La Quinta Motor Inns | 0.38 | 69% | 31% | 0.12 | Ramada Inns | 0.95 | 65% | 35% | 0.33 | Value-weighted mean | | | | 0.41 | rAL=8.95+0.41*7.43=11.97% ■Restaurants | | | | | -Restaurant- | βE | D/D+E | E/D+E | βA | Church’s...
Words: 478 - Pages: 2
...Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to COMMISSION FILE NO. 001-32876 WYNDHAM WORLDWIDE CORPORATION (Exact name of registrant as specified in its charter) 20-0052541 (I.R.S. Employer DELAWARE (State or other jurisdiction of incorporation or organization) Identification No.) 22 SYLVAN WAY 07054 PARSIPPANY, NEW JERSEY (Zip Code) (Address of principal executive offices) (973) 753-6000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each Class on which registered Common Stock, Par Value $0.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. No ¨ No Yes ¨ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by...
Words: 58885 - Pages: 236
...Blekinge Institute of Technology School of Management Master Thesis M.Sc. in Business Administration The Use of Promotional Activities in the Tourism Industry: The Case of Bangladesh [pic] By Md. Jakir Hossain Dr. Klaus Solberg Søilen ID # 670504-P777 Academic Supervisor E-mail: mjho05@student.bth.se hossainj67@yahoo.com Date: 07 June, 2006 Abstract This thesis is an attempt to investigate how the use of promotional activities can help to develop the tourism industry by giving a special concentration to the case of Bangladesh. The investigation was conducted from both a theoretical and an empirical point of view. The contribution of the same industry to the world economy is considerable. Many countries are now dependent on this sector for foreign currency earnings. Every destination country is trying to achieve more gain by developing this industry. The expansion of the tourism through out the world has increased competition among the tourist destinations, trying to attract more tourists by adopting appropriate marketing techniques and strategies. Failure of doing so by a particular marketer will lead to a less competitive in the world tourism market. As an important element of marketing mix, promotion plays the vital role in marketing any product and service. Tourism product/service is of no exception. Because of the tourists want to know in advance about the attractions and the facilities of a particular destination. The tourist...
Words: 58440 - Pages: 234
