Marriott Corp
Harvard Business School
9-289-047
Rev. April 1, 1998
Marriott Corporation: The Cost of Capital
(Abridged)
In April 1988, Dan Cohrs, vice president of project finance at the Marriott Corporation, was preparing his annual recommendations for the hurdle rates at each of the firm’s three divisions.部门
要求报酬率
Investment projects at Marriott were selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division.
In 1987, Marriott’s sales grew by 24% and its return on equity (ROE) stood at 22%. Sales and earnings per share had doubled over the previous four years, and the operating strategy was aimed at continuing this trend. Marriott’s 1987 annual report stated that:
We intend to remain a premier growth company. This means aggressively developing appropriate opportunities within our chosen lines of business—lodging, contract services, and related businesses. In each of these areas, our goal is to be the preferred employer, the preferred provider, and the most profitable company.
profit rate
Cohrs recognized that the divisional hurdle rates at Marriott would
40%
have a significant impact on the firm’s financial and operating strategies. As a
30%
经验法则rule of thumb, increasing the hurdle rate
20%
by 1% (for example, from 12% to
12.12%), decreased the present value of
10%
project inflows by 1%. Because costs remained roughly fixed, these changes
0%
in the value of inflows translated into
-10%
changes in the net present value of projects. Figure A shows the substantial
-20%
7%
8%
9%
10%
11%
12%
impact of hurdle rates on the anticipated预期的 hurdle rate net present value of projects. If hurdle rates were to increase, Marriott’s growth would be reduced as once Figure A : Typical Hotel Profit and Hurdle Rates profitable projects no longer met the Source: Casewriter estimates. Profit rate for a hotel is its net present value divided by its cost. hurdle rates. Conversely, if hurdle rates decreased, Marriott’s growth would accelerate. Professor
9-289-047
Rev. April 1, 1998
Marriott Corporation: The Cost of Capital
(Abridged)
In April 1988, Dan Cohrs, vice president of project finance at the Marriott Corporation, was preparing his annual recommendations for the hurdle rates at each of the firm’s three divisions.部门
要求报酬率
Investment projects at Marriott were selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division.
In 1987, Marriott’s sales grew by 24% and its return on equity (ROE) stood at 22%. Sales and earnings per share had doubled over the previous four years, and the operating strategy was aimed at continuing this trend. Marriott’s 1987 annual report stated that:
We intend to remain a premier growth company. This means aggressively developing appropriate opportunities within our chosen lines of business—lodging, contract services, and related businesses. In each of these areas, our goal is to be the preferred employer, the preferred provider, and the most profitable company.
profit rate
Cohrs recognized that the divisional hurdle rates at Marriott would
40%
have a significant impact on the firm’s financial and operating strategies. As a
30%
经验法则rule of thumb, increasing the hurdle rate
20%
by 1% (for example, from 12% to
12.12%), decreased the present value of
10%
project inflows by 1%. Because costs remained roughly fixed, these changes
0%
in the value of inflows translated into
-10%
changes in the net present value of projects. Figure A shows the substantial
-20%
7%
8%
9%
10%
11%
12%
impact of hurdle rates on the anticipated预期的 hurdle rate net present value of projects. If hurdle rates were to increase, Marriott’s growth would be reduced as once Figure A : Typical Hotel Profit and Hurdle Rates profitable projects no longer met the Source: Casewriter estimates. Profit rate for a hotel is its net present value divided by its cost. hurdle rates. Conversely, if hurdle rates decreased, Marriott’s growth would accelerate. Professor