Marriott corporation
Marriott corporation
Group -1
Akasha.J
Dhivya Priya.R
Gayathri.P.A
Sadhana.S
Srikumaran.M.A
Components of Marriott’s Financial Strategy
Growth Objective: Is to become the preferred employer and provider in lodging, contract services and restaurants, and to be the most profitable company in the industry.
1. Manage rather than own hotel assets:
Lowers accounting assets on the books thereby increasing the ROA.
Sharing of risk that comes from the properties and provide Marriott to operate with more liquidity. 2. Invest in Projects that increase shareholder value:
Analyzing potential projects and determining projects having a higher NPV.
3. Optimize the use of debt in the capital structure:
By reducing debt, Marriott can decrease their D/E ratio – more attractive to existing and new shareholders. 4. Repurchase undervalued shares:
. Will positively affect share price and shareholder value.
. As Marriott continues to make profits, buyback of shares increases the profit per share causing demand and price of the shares to increase.
. Overall, Marriott’s financial strategy aligns with their growth objective, although planning to buy back shares when they are undervalued may not be a good long term plan. Also, their strategy doesn’t address their interest in becoming a preferred employer.
Marriott’s cost of capital
Marriott business lines are lodging, restaurant and contract services
Wd = 0.60,We = 0.40 ( Given)
Tax rate = ( Income taxes / Income before tax) = 44%
Cost of debt: Marriott uses cost of long term debt for lodging division and uses cost of short term debt for restaurant and contract service division
Cost of debt = Govt. interest rates + Debt rate premium
Maturity
Rate(%)
30 – year
8.95
10 – year
8.72
Risk free return = 8.95%
Market risk = 9.90%
Rd = (0.0895+0.0872+0.0872)/3 + 0.013 = 0.101
Re = Rf +(Rm – Rf) β
Estimating Beta :
Beta of the firm can be calculated by first finding the beta unleveraged value. βu= βL /
Group -1
Akasha.J
Dhivya Priya.R
Gayathri.P.A
Sadhana.S
Srikumaran.M.A
Components of Marriott’s Financial Strategy
Growth Objective: Is to become the preferred employer and provider in lodging, contract services and restaurants, and to be the most profitable company in the industry.
1. Manage rather than own hotel assets:
Lowers accounting assets on the books thereby increasing the ROA.
Sharing of risk that comes from the properties and provide Marriott to operate with more liquidity. 2. Invest in Projects that increase shareholder value:
Analyzing potential projects and determining projects having a higher NPV.
3. Optimize the use of debt in the capital structure:
By reducing debt, Marriott can decrease their D/E ratio – more attractive to existing and new shareholders. 4. Repurchase undervalued shares:
. Will positively affect share price and shareholder value.
. As Marriott continues to make profits, buyback of shares increases the profit per share causing demand and price of the shares to increase.
. Overall, Marriott’s financial strategy aligns with their growth objective, although planning to buy back shares when they are undervalued may not be a good long term plan. Also, their strategy doesn’t address their interest in becoming a preferred employer.
Marriott’s cost of capital
Marriott business lines are lodging, restaurant and contract services
Wd = 0.60,We = 0.40 ( Given)
Tax rate = ( Income taxes / Income before tax) = 44%
Cost of debt: Marriott uses cost of long term debt for lodging division and uses cost of short term debt for restaurant and contract service division
Cost of debt = Govt. interest rates + Debt rate premium
Maturity
Rate(%)
30 – year
8.95
10 – year
8.72
Risk free return = 8.95%
Market risk = 9.90%
Rd = (0.0895+0.0872+0.0872)/3 + 0.013 = 0.101
Re = Rf +(Rm – Rf) β
Estimating Beta :
Beta of the firm can be calculated by first finding the beta unleveraged value. βu= βL /