...Q1: Four components of Mariott’s financial strategy are consistent with its growth objectives. The growth objective is to increase sales and earnings per share. All of the four components of Mariott’s financial strategy are consistent with its growth objectives. Strategy one, managing rather than owning hotel assets, leads to decrease in cost. Save on the costs can be invested in more hotels and generate profits after pre-specified return. Strategy two, investing in projects that increase shareholders value with positive NPV, brings resources for future growth. Strategy three, optimizing the use of debt in the capital structure, supports the growth target, since debt is a cheaper than equity to finance the future growth. Strategy four, repurchasing undervalued shares, generates value for shareholders equivalent to positive NPV project. Q2: Ways Mariott uses its estimate of its cost of capital Marriott uses its estimate of its cost of capital to choose possible investment projects, determine incentive compensation and calculate the warranted equity value. Marriott uses different hurdle rates for different divisions to discount the future cash flow to decide which project to invest. It makes sense as projects for different divisions bear different risks. And Marriott sets different bonus awards for managers who have different responsibilities. And the awards are connected with divisional returns as well as divisional hurdle rates. This also makes sense as managers in different...
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...tahun 1926-1987 sebesar 12.01% Dari soal kami ketahui Beta Levered Marriott adalah 0.97. Tetapi ini adalah beta untuk tahun 1986-1987 dengan komposisi struktur kapital yang berbeda dengan yang diinginkan (debt sebesar 60%). Dari exhibit 1, kami ketahui debt untuk tahun 1987 adalah 41% dari keseluruhan kapital. Untuk mendapatkan beta levered dengan komposisi struktur kapital yang berbeda, kami menggunakan rumus Hamada. Bl=Bu+(1+(1-t)D/E) Bl=0,97; tax=0.34; D=2.498,8(juta dollar), E=$30*118,8million shares=3.564(juta dollar) Bu (beta unlevered)=0,66 Dari beta unlevered ini kami gunakan untuk perhitungan beta dengan komposisi struktur kapital debt 60%. Bl=Bu+(1+(1-t)D/E) D=0,6; E=0,4 maka didapatkan Beta Levered untuk Marriot adalah 1,32 Dengan demikian kami dapatkan CAPM, CAPM=Rf+b(Rm-Rf) sebesar 0,167 Rd, cost of debt didapatkan dengan menggunakan US government interest rate pada tahun 1988 untuk jangka maturity sebesar 30 tahun (kami asumsikan ini sesuai dengan going-concernnya Marriott) sebesar 8.95% dan tebarannya di atas Rate Premium pemerintah US sebesar 1.30%, maka kami dapatkan Cost Of Debt sebesar 8.95%+1.30%=10.25%. Dalam perhitungan ini kami juga mengasumsikan untuk tidak menggunakan perhitungan Floating Rate untuk debt. Tax yang digunakan adalah 34%, komposisi debt sebesar 60% dan...
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...| Marriott Corporation | Case Study – Write Up | Hitesh Gupta & Swapnil Deshpande 2-5-2015 | Q1 what is overall WACC for Marriott Corporation? Ans :- For calculating WACC we need cost of equity for the firm(ke) ,cost of debt(kd) capital structure of the firm and tax rate (t). To calculate cost of debt we chose the long term interest rate on U.S. government bond and added debt rate premium (From Table A debt premium = 1.3%) for Marriott Corporation to it. We chose long term US govt bond rate (Rf = 8.95%) majorly because of their lodging business which contributes more than 50% of the profit and has assets of a very long useful lives The target capital structure is provided in Table A of the case study which is 60% debt and 40% equity. We will use the same while calculating WACC. From exhibit 1 of case study the Tax rate in the year 1987 for unlevered beta = 44% = (Income tax / Income before income tax)*100% To Calculate cost of equity we have followed the below process (See Appendix for calculations): 1) Calculated unlevered beta (βu) using the given debt to equity ratio and given equity beta from Exhibit 3 of case study βu= βl(1+1-t*DE) 2) Levered the βu with the targeted capital structure and tax rate = 35% βl = βu*(1+1-t*DE) 3) To determine the risk premium (Rm – Rf) we have used 1926 -87 Spread between S&P 500 composite return and long term U.S. govt bond return (Exhibit 5 of the case study) to have a reasonable measure of long...
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...1.Since the Marriott Corporation began in 1927, the business grew into one of the leading lodging and food service companies in the United States. From the Exhibit 1, the sales grew 455% ($1174.1 to $6522.20) from 1978 to 1987. The Return on average shareholders’ equity grew to 22.2% from 13.9%. The company’s growth objective is to remain a premier growth company. The four components of Marriott’s financial strategy are consistent with its growth objective. Firstly, manage rather than own hotel assets saved lots of costs and reduced its debt. While retaining operating control, Marriott generated $890 million revenue and the management cost is only 3% of the revenues. Second, invest in projects that increase shareholder value benefits the company by using discounted cash flow techniques to evaluate potential investments. It considered present time value and the company can ensure a return on projects which results in profitable and competitive advantage. Third, optimize the use of debt in the capital structure is achieved by invests money in long term assets. It can maximize its debt. Finally, to repurchase undervalued shares once its stock market price fell substantially below that value generate $429 million stocks by only using $13.6 million. All of these four strategy is crucial to keep the company’s growth. 2.Marriott use WACC to estimate its cost of capital. Weighted average cost of capital is used to calculate a firm’s cost of capital in which each category of capital...
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...202-S08 REV. 1 DE ABRIL, 1998 RICHARD S. RUBACK Marriott Corporation: el coste del capital (Resumido) En abril de 1988, Dan Cohrs, vicepresidente de financiación de proyectos de Marriott Corporation, estaba preparando su recomendación anual acerca de las tasas de aceptación de proyectos en cada una de las tres divisiones de la empresa. En Marriott, los proyectos de inversión se seleccionaban descontando para cada división los «cash flow» apropiados por las tasas de aceptación correspondientes. En 1987, las ventas de Marriott crecieron un 24% y la rentabilidad de los recursos propios ascendió al 22%. Las ventas y el beneficio por acción se habían duplicado durante los cuatro años anteriores, y la estrategia corporativa pretendía continuar con esta tendencia. Según la Memoria anual de Marriott de 1987: «Pensamos seguir siendo una empresa de crecimiento puntera. Esto significa desarrollar agresivamente las oportunidades apropiadas dentro de las líneas de negocio que hemos escogido: hostelería, servicios contratados y negocios relacionados. En cada una de estas áreas, nuestro objetivo es ser el empleador preferido, el proveedor preferido y la empresa más rentable.» Cohrs admitía que las tasas de aceptación divisionales de Marriott tendrían un impacto significativo sobre las estrategias financiera y corporativa de la empresa. Como regla empírica, el aumentar la tasa de aceptación en un 1% (por ejemplo, del 12 al 12,12%) disminuía el valor actual de los ingresos de proyectos...
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...Marriot case Analysis 1, financial strategy According to the case, we noticed that Marriott Corporation intends to remain a premier growth company, to be the preferred employer, the preferred provider and the most profitable company. And in order to achieve these goals, it incorporated four main elements into its financial strategy. In our opinion, these elements are consistent with the financial strategy. First, Marriot sold its own hotel assets to limited partners but retain the operating control as the general partner. In other words, Marriot tried to reduce the assets it owns. According to ROA, which is calculated by dividing a company’s annual earnings by its total assets, we can know that, ROA will increase as asset reduced, which gives us a sign that Marriott’s profitability is increasing. At the same time, by diversifying the owners of the hotel assets, it may also reduce the risk to invest Marriott, which will also attract more investors to enter this Corporation and helps the company to have more capital to develop. Also, Marriot is able to retain the operating control as the general partner under a long-term management contract, so it might reduce the possibility for someone to take over the whole hotel assets and make changes about the current operating control right. Thus Marriot will operate in a growing and profitable way. Second, Marriot used discounted cash flow techniques to evaluate the projects and invest in projects that increase shareholder value...
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...Advanced Corporate Finance Marriott Case 1.The WACC for Marriot Corp is 10.68% if taken alone. Another way would be to use the standardized weights of all the other divisions lodging,restaurant and contract services WACC . This gives us a WACC of 10.21% for the Entire Entity. a.The risk free rate used was 4.58% (Long Term Us Government Bond Returns 1926-1987) as these represent an asset of similar risk and longevity(Lodging can be considered to be a long term business).The Market Risk used was the S&P 500 composite(1926-1987) which was 12.01% .The risk premium in this case turned out to be Market Risk-Risk Free = 7.43% 2. If they are opening a new restaurant or lodging facility one can use Mariotts WACC to decide whether to go ahead with the project proposal or not. 3.Lodging Division WACC = 9.17% , Restaurant Division WACC=11.83% a.For all the divisions the risk free rate used was 4.58% (Long Term Us Government Bond Returns 1926-1987) as these represent an asset of similar risk and longevity.The market risk and market risk premium used for all cases was the S&P index 12.01% and 7.43% respectively. b.Cost of Debt : Marriot Marriott =8.95%(Debt Equivalent 30 Yr Maturity) + 1.3% (Premium)=10.25% Lodging =8.95%(Debt Equivalent 30 Yr Maturity) + 1.1% (Premium)=10.05% Marriott and Lodging were considered to long term business with a shelf life of 30 years Lodging =8.72%(Debt Equivalent 10 Yr Maturity) + 1.4% (Premium)=10.35% Contract =8.72%(Debt Equivalent...
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...MARRIOTT Case Analysis 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? Manage rather than own hotel assets – Although this strategy has a risk of contract expiration it makes easier to expand. Invest in projects that increase shareholder value – This component definitely stimulates growth, although may force management to take more risk. Optimize the use of debt in the capital structure – The concept of optimal capital structure stands for the growth, nevertheless the techniques used by management sometimes limit it in favour for the higher rating. Repurchase undervalued shares – In a number of cases this component may lead to directing the cash flows not in the projects with positive NPV, which may impede growth. 2. How does Marriott use its estimate of its cost of capital? Does this make sense? Marriott used (or considered to use) the estimate for the cost of capital in two ways: a) Discounted CFs from projects by the appropriate division’s hurdle rate to get NPV, which makes a lot of sense since the risk among divisions varies. b) Thought about incorporating hurdle rate in compensation policy – this doesn’t make much sense, because the rate reflects the risk of activities, not the performance of managers. 3. Compute the WACC of Marriott Corporation: a. What risk-free rate and the risk premium did you use to calculate the cost of equity? To be consistent with risk premium calculations I used the arithmetic...
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...in today’s unpredictable market. • Optimize use of debt in capitol structure – There is a possibility that Marriott is over leveraged, with 59% of its total capitol being financed with debt, however, this does allow them to expand. • Repurchase undervalued stocks - This does not fit with Marriott’s strategy to expand and grow. If a company is to expand, they need to invest in growth projects; they can’t be focused on buying back stock to inflate market value. However, it can be a sign to investors that they are confident in their business model, and it should increase shareholder value, as the price per share should increase. 2. How does Marriott use its estimates of its cost of capitol? Does it make sense? • Marriot uses of cost of capital as the hurdle rate to discount future cash flows for the investment projects of the firm’s three divisions, and then to calculate the net present value and net present value over cost to decide for the profit rate. Seeing as how cost of projects stays the same, net present value and hurdle rates are used as variables to decide if they should be accepted or not. Higher hurdle rates equate to a lower net present value (future cash flows are discounting at a higher rate.) Bottom line...
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...With these developments, it is obvious that conflicts between parties of different nationalities occur and liability to tax on income of foreigners especially among those engaging in trading venture. Whilst the laws affecting domicile and residence may be sufficiently settled, it is paramount for courts to pursue a detailed analysis to ascertain specific preliminary issues so as to avoid controversial rulings. Courts often handle numerous financial cases that involve what can be best described as foreign or international elements. In such cases, court must decide whether it has the jurisdiction under the Family Law Act 1975 to make a decision on such cases. In the event that it is determined that the court is invested with the jurisdiction to determine the case, the court has to consider whether there is a system of law in foreign country that also has the jurisdiction to handle the case. As it was addressed in the case Attorney General of New Zealand v Ortiz [1984] AC 1, these benefits and costs to either party if the case resolution is made in foreign country as compared with the apparent country should also be a subject of concern. [1] Legal systems in most countries around the world adopt community property regime, which takes effect at the inception of marriage or at the time of divorce. For instance, California and Massachusetts in the United States have adopted community property regimes that support equal division of assets upon divorce. However, this provision...
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...Adapted from Bernhardt & Kinnear (1988). Cases in marketing management, pp. 6-16. Plano, TX: Business Publications, Inc. Pay careful attention to the following points. They are often used by instructors to evaluate either a written or oral analysis. 1. Be complete. Each area of the situation analysis must be discussed, problems and opportunities identified, alternative presented and evaluated using the situation analysis and relevant financial analysis, and a decision must be made. An analysis that omits part of the situation analysis or only recognizes one alternative is not a good analysis. Second, each area must be covered in-depth and within insight. 2. Avoid rehashing case facts. Every case has a lot of factual information. A good analysis uses facts that are relevant to the situation at hand to make summary points of analysis. A poor analysis just restates or rehashes theses facts without making relevant summary comments. 3. Make reasonable assumptions. Every case is incomplete in terms of some piece of information that you would like to have. A good case analysis must make realistic assumptions to fill in the gaps of information in the case. For example, the case may not describe the purchase decision process for the product of interest. A poor analysis would either omit mentioning this or just state that no information is available. A good analysis would attempt to present this purchase decision process by classifying the product and drawing upon real life...
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...are given. It is understandable then that we should seek out more opportunities to apply our skills and make more positive impacts within our jurisdictions. It is this general attitude that led us to get involved in investigating cold cases. How We Got Started Mark had, for several years, been consulting with our Coroner’s Division as a forensic anthropologist. During this time he came to learn that there were numerous coroners’ cases in which the identity of the decedent was unknown. These cases were kept in three-ring binders on a shelf in the Sergeant’s office. Over the years, in the course of this forensic work, we would discuss these cases and the progress that was being made on them. The conversation usually ran along the lines of us asking “any luck with that 1980 homicide victim?” and the sergeant answering “well, we’ve gotten so many new cases that I haven’t been able to even look at it yet.” This went on for a few years and through two different sergeants. One day we, as a crime analysis unit, were brainstorming about how we could broaden our “client base”, as it were. We had been successful in integrating ourselves into our Investigations Bureau and had been involved in numerous major cases. And, of course, we had always been active in producing tactical and strategic analyses for our patrol personnel. But we knew that we could be doing more, particularly given the size and responsibilities of our agency. It was during...
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...BUSINESS CASE Presented to the Accountancy Department De La Salle University In partial fulfillment Of the course requirements In ACCTBA2 (C33) March 2, 2015 A stakeholder is typically concerned with an organization delivering intended results and meeting its financial objectives. In general, a stakeholder can be one of two types: internal (from within an organization) or external (outside of an organization). The stakeholders in this situation are Lanie Marquez and Tim Rodriguez who are also partners in the retail distribution business and their capital contributions are as follows P500,000 and P300,000 respectively they are an internal stakeholder since they are also the owners. The total Capital of both stakeholders is P800,000 and with a monthly salary for both partners at P15,000 on the assumption that both of them will contribute to manage the business equally. Assuming that both managed the business equally the total salary for the year for Lanie and Tim are P180,000 each. They share profit and loss equally and no interest will be given on capital contributed. The problem for this situation is that Lanie is starting to get concerned with the behavior of her other partner Tim. He only manages the business 50% of the time, which will mean that his salary of P15,000 will need to decrease by also 50% since he does not manage the business equally with his partner. The business has seen a downturn in the profit outcome and for the current financial...
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...Ralph’s Grocery and United Food and Commercial Workers Union The case that I chose for the week 6 critical thinking assignment concerns Ralph’s Grocery Company, located in California. It applies to this week’s material due to the fact that the case involves unlawful suspension and discharge of an employee, as reviewed by the National Labor Relations Board. Background In May 2011, Vittorio Razi was an employee at Ralph’s Grocery and was suspended and terminated after he refused to take a drug test without first consulting with his UFCW Local 324 representative. The company (Respondent) says that on the day in question, Razi’s behavior was in question, acting nervous, anxious, agitated, and slurred speech. After a couple managers discussed the...
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... Many people wonder why their own teeth stain so easily. The enamel on your teeth and chromogens are what stains your teeth, but what exact beverage stains teeth the most? I chose this topic because I was curious to know what stains teeth the most. It affects us daily because it could rot your teeth or you can’t pick up hot chicks anymore. So what causes teeth to stain? The temperature causes teeth to expand or contract making it easier for stains. So hot and cold drinks affect that. Color in foods and beverages come from chromogens. Chromogens are intensely pigmented compounds that stick to teeth enamel. Chromogens cause a lot of trouble when they mix and react with other stain causing and stain promoting factors. Tannis may be natural or synthetic tannis is another factor that stains teeth. Tooth enamel is porous making it extremely susceptible to stains. The darker the liquid the darker the stain. There are some examples that stain teeth. Not only sodas bad but also Gatorade. Beets are bad for you also. Mostly cause they’re concentrated. Berries dark skins stain teeth. Ketchup is also really bad because of its bright red color and high levels of acid. Dark liquids and sauces you put on your foods also stain teeth. Colored candy and popsicles both contain colorants that will transfer to the teeth and embed in the porous enamel. Fruit juices, especially grape and cranberry, leave a colorful tinge on the teeth and tongue. Colored sodas instantly discolor teeth. The citric acids...
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