marrorit corporate
Liuqing He
Fin 423-Strategy Paper
Professor Haddad
April 9, 2015 Marriott Corporation
As the vice president of project finance of Marriott Corporation, I am conducting an analysis of our company (Marriott Corporation) for calculating the hurdle rates at each of our firm’s three divisions: lodging, restaurant and contract services. I use Weighted Average Cost of Capital (WACC) as the hurdle rate. The investment projects in our company are selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division.
As the vice president of project financeof Marriott Corporation, I am conducting an analysis of our company (Marriott Corporation) for calculating the hurdle rates at each of our firm’s three divisions: lodging, restaurant and contract services. I use Weighted Average Cost of Capital (WACC) as the hurdle rate. The investment projects in our company are selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division.
First of all, I will determine the cost of debt (Rd), cost of equity (Re) and the capital structure for the whole company. Then I can get the tax rate to calculate the WACC for the whole company. After this, I will determine the Risk-free Rates (Rf), Risk Premiums (Rp) and Betas (β) for lodging and restaurant divisions in order to calculate the Cost of Equity for these two divisions. After finding out the cost of debt and the fraction of debt for lodging and restaurant divisions, I will be able to calculate the WACC at each of the two divisions. Using a weighted average method of the identifiable assets of our company in 1987, I will then be able to find out the β and determine the cost of debt and the fraction of debt for contract services division. Finally, I will be able to get the WACC for this division.
The divisional hurdle rates in our company would have a significant impact on our firm’s financial and operating strategies. I use cost of capital as the
Fin 423-Strategy Paper
Professor Haddad
April 9, 2015 Marriott Corporation
As the vice president of project finance of Marriott Corporation, I am conducting an analysis of our company (Marriott Corporation) for calculating the hurdle rates at each of our firm’s three divisions: lodging, restaurant and contract services. I use Weighted Average Cost of Capital (WACC) as the hurdle rate. The investment projects in our company are selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division.
As the vice president of project financeof Marriott Corporation, I am conducting an analysis of our company (Marriott Corporation) for calculating the hurdle rates at each of our firm’s three divisions: lodging, restaurant and contract services. I use Weighted Average Cost of Capital (WACC) as the hurdle rate. The investment projects in our company are selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division.
First of all, I will determine the cost of debt (Rd), cost of equity (Re) and the capital structure for the whole company. Then I can get the tax rate to calculate the WACC for the whole company. After this, I will determine the Risk-free Rates (Rf), Risk Premiums (Rp) and Betas (β) for lodging and restaurant divisions in order to calculate the Cost of Equity for these two divisions. After finding out the cost of debt and the fraction of debt for lodging and restaurant divisions, I will be able to calculate the WACC at each of the two divisions. Using a weighted average method of the identifiable assets of our company in 1987, I will then be able to find out the β and determine the cost of debt and the fraction of debt for contract services division. Finally, I will be able to get the WACC for this division.
The divisional hurdle rates in our company would have a significant impact on our firm’s financial and operating strategies. I use cost of capital as the