200 Fall 2012 Marriot Corporation [pic] Group 9 Timothy Muer Adnan Qureshi Valerie Schmidt Joshua Swartz December 16th, 2012 December 16th, 2012 Dan Cohrs Marriot Corporation Vice President of Project Finance RE: Marriott Corporation Consultant Summary Dear Mr. Cohrs, We are pleased to offer our consulting opinion in regards to the cost of capital, debt, and equity. We have reviewed and analyzed the industry and market data provided as well as heavily researched
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2. The weighted average cost of capital for Marriott Corporation ...................................................... 2 (a) The risk free rate and risk premium to calculate the cost of equity. .......................................... 2 (b) Measurement of Marriott’s cost of debt .................................................................................... 2 (c) Preference and explanaton between arithmetic & geometric mean to measure rates of return . 2 3. Which type of investment you
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Marriott Corporation: The Cost of Capital Executive Summary J. Willard Marriott started Marriott Corporation in 1927 with a root beer stand, expanding it into a leading lodging and food service company with sales of over $6 billion by 1987. At the time, Marriott had three main lines of business, lodging, contract services and restaurants, with lodging generating about 51% of company’s profits. The four key elements of Marriott’s financial strategy were managing hotel assets rather than owning
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| |Marriott Corporation: | |Cost of Capital | Concepts Covered Cost of Equity: Cost of Equity is the minimum rate of return a firm must offer to the shareholders
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Marriott Corporation | | | | | | 08. April 2014 Table of Contents 1 Are the four components of Marriot`s financial strategy consistent with its growth objective? 1 2 How does Marriott use its estimate of its cost of capital? Does it make sense? 3 3 What is the WACC for Marriott Corporation? 3 3.1 Risk free rate? Market risk premium? 3 3.2 Cost of debt? 4 4 What type of investments would you value using Marriott´s WACC? 6 5 If Marriott used a single corporate
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arriott Corporation: The Cost of Capital (Abridged) Executive Summary: The case "Marriott Corporation: The Cost of Capital (Abridged)" focuses on an ideal opportunity to review the capital asset pricing model and the weighted average cost of capital through calculation of the cost of capital for Marriott as a whole. Dan Cohrs is faced with making recommendations for the hurdle rates at Marriott Corporation and its three divisions utilizing CAPM and WACC. This case illustrates how to
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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
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2. In this case Marriott used Weighted Average Cost of Capital to determine to take on certain investments. Using the WACC it does make sense in this instance. Marriott has 3 different divisions they are in: lodging, restaurants, and contract services. For each of these services they calculated each WACC individually to give an accurate account of each individual divisions risk level. They use hurdle rates for each division to see which projects to take on and if they provide enough return for
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preferred employer, preferred provider and the most profitable company, which means Marriott intend to outperform the average market. Considering the above information, Marriott’s financial strategies are consistent with its growth objective. To be more specific, firstly, Marriott actively manages hotel assets using syndication method with a fully integrated development process rather than passively own it. For example, Marriott developed more than $1 billion worth of hotel properties, making it one of
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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
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