Marriott Case i. What is the cost of capital for Marriott Corporation as a whole? | βE | D/D+E | E/D+E | βA | Marriot Whole | 0.97 | 41% | 59% | 0.57 | Target | 1.43 | 60% | 40% | 0.57 | rA=8.95+0.57*7.43=13.20% ii. What types of investments would you value using Marriott’s WACC? Since most projects have their own idiosyncratic risks and various leverage levels, their discount rates are mostly different than the WACC of the company as a whole. Only for projects that have the same
Words: 478 - Pages: 2
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
Words: 296 - Pages: 2
Marriott Corporation: The Cost of Capital (Abridged) Dan Cohrs, Vice President of Marriott Corporations project finance, prepared his annual recommendations for the hurdle rates. The year before, Marriott’s sales grew 24%, sales and earnings per share had doubled the last 4 years and the ROE stood at 22%. The strategy of Marriott was to remain a growth company. The goal was to be one of most preferred employer, the most profitable company and a preferred provider. The financial strategy of Marriott
Words: 633 - Pages: 3
How Marriott Never Forgets a Guest When retiree Ben B. Ussery Jr. goes on vacation, he typically spends hours beforehand nailing down golf dates, scouting shops for his wife, and making restaurant reservations. But last year, when the Usserys and another Richmond (Va.) couple chose to spend a week at Marriott's Desert Springs resort in Palm Desert, Calif., he let the hotel do the legwork. Weeks in advance, Marriott planning coordinator Jennifer Rodas called Ussery to ask what he wanted to do
Words: 556 - Pages: 3
HEC Lausanne Corporate Finance Case 3: Marriott Corporation (A) Spring Semester 1. Project Chariot is proposed by MC’s CFO, Stephen Bollenbach, to face the troubles that Marriott Corporation (MC) is currently facing. A glimpse of history is useful to understand the current situation. MC’s main business is to develop hotel properties, to sell them to outside investors and to conclude long-term contracts. In the 70’s MC began to finance its expansion by major borrowings under the impulsion
Words: 2709 - Pages: 11
Analysis of Marriott Corporation’s ‘Project Chariot’ Introduction In the spring of 1992, J.W. Marriott Jr., Marriott Corporation’s Chairman and CEO, must decide whether to recommend a proposal to the Board of Directors for a complete restructuring of the firm due to financial distress and a hefty current debt burden. While restructuring seems promising to executives, there are serious ethical considerations at hand regarding the fiduciary duty of management to both shareholders and debtholders
Words: 1821 - Pages: 8
In January 1980, the management of the Marriott Corporation found itself in an interesting dilemma: not only did the corporation have considerable excess debt capacity, but projections of future operations and cash flows indicated that this capacity was on the rise. For Marriott, excess debt capacity was viewed as comparable to unused plant capacity because the existing equity base could support additional productive assets. Management was therefore faced with two problems. First, it needed to determine
Words: 616 - Pages: 3
Nov. 25th, 2014 Marriott Case 1) Marriott Corporation is trying to determine the proper WACC it which to value it’s projects in the near future. A problem exists because the market (especially the bond market) has been quite volatile, which affects the risk free rate. The risk free rate is the foundation of CAPM, which will be needed to determine the WACC. 2) The problems arise because the four key elements of Marriott’s financial strategy are managing hotel assets rather than owning, investing
Words: 966 - Pages: 4
Marriott Corporation - The Cost of Capital (Abridged) The Marriott Corporation is comprised of three major lines of businesses, lodging, restaurants and contract services. In order to decide which projects to take on in these divisions, each year a hurdle rate must be set which they use to discount a project’s cash flow to see if it will be profitable enough. We will conduct an analysis to calculate the hurdle rate for Marriott as a whole and for each division. We will use WACC as the hurdle rate
Words: 2574 - Pages: 11
1. The case provides a formula for the weighted average cost of capital (WACC) that differs slightly from the formula given in class. For the purpose of your analysis, use the version of the formula given in class: We will discuss the version of the WACC given in the case later in the course. 2. In answering the questions below, pay careful attention to the distinction between Marriott’s current capital structure and its target capital structure. Please answer the following questions in
Words: 264 - Pages: 2
