Case #3 “Marriott Corporation” The Cost of Capital” What is the weighted average cost of capital for the Marriott Corporation and cost of capital for each of its divisions? – What risk-free rate and risk premium did you use to calculate the cost of equity? – How did you measure the cost of debt? – How did you measure the beta for each division? Solution What risk-free rate and risk premium did you use to calculate the cost of equity? – Risk-free rate proxy The risk-free
Premium Arithmetic mean Weighted average cost of capital Average
The capital budgeting proposals consists of five distinct but interrelated steps: 1) Proposal generation: Proposals are made at all levels within a business organization and are reviewed by the finance personnel. Proposals that require large outlays are more carefully scrutinized than less costly ones. 2) Review and analysis: Formal review and analysis is performed to assess the appropriateness of proposals and evaluate their economic viability. Once the analysis is complete‚ a summary report
Premium Generally Accepted Accounting Principles Economics Cost-benefit analysis
Case 1- Marriott Corporation: The Cost of Capital Some preliminary questions: 1. What do you think about Marriott’s policy of repurchasing shares? Repurchase whenever stock price < warranted equity value Does this mean the market is inefficient? 2. Why does Marriott manage rather than own hotel assets? Finding limited partners on a hotel project is equivalent to selling private equity in the project Is there any reason to
Premium Hotel Economics Generally Accepted Accounting Principles
Case 1: Capital Mortgage Insurance Corporation Background Capital Mortgage Insurance Corporation (CMI) is a wholly owned subsidiary of Northwest Equipment Corporation (NEC). NEC expects Frank Randall‚ company president; to build CMI into a larger more diversified financial service company. To do this Randall wants to acquire Corporate Transfer Services (CTS) a small relocation services company‚ as part of a plan for diversification. Informal discussions took place with the principal stockholders
Premium Subsidiary Parent company Corporation
CHAPTER 18 VALUATION AND CAPITAL BUDGETING FOR THE LEVERED FIRM Answers to Concepts Review and Critical Thinking Questions 1. APV is equal to the NPV of the project (i.e. the value of the project for an unlevered firm) plus the NPV of financing side effects. 2. The WACC is based on a target debt level while the APV is based on the amount of debt. 3. FTE uses levered cash flow and other methods use unlevered cash flow. 4. The WACC method does not explicitly include the interest cash
Premium Depreciation Weighted average cost of capital Corporate finance
PESTL Analysis Political The ever changing international political situation affects both domestic and international firms. International trade policies‚ political movements and global events all affect the manner in which firms operate within the market. The general retail industry has greatly benefited from the liberalization of international trade. Europe and the United States comprise approximately 75% of the market of the general merchandise store sector. With the lowering of US tariffs
Free United States Cost Developed country
SQL> select * 2 from area64; ARNO ARNAME ARTYP ---------- -------------------- ----- 1 Mumbai Urban 2 Paud Rural 3 Pune Urban SQL> select * 2 from ppl64; PNO PNAME DOB INCOME ARNO ---------- -------------------- --------- ---------- ---------- 1 Nikhil 10-AUG-91 150000 3 2 Suyoga 18-OCT-95
Premium Given names
Question 6 What is the cost of capital for the lodging and restaurant divisions of Marriott? Answer: The cost of capital for lodging is 9.2% and the cost of capital for restaurants is 13.1% Calculation: WACC = (1-t) * rd * (D/V) + re* (E/V) Where: D= market value of DEBT re = aftertax cost of equity E = market value of EQUITY V = D+E rd = pretax cost of debt t = tax rate To calculate the formula above‚ we need to determine each component Tax rate (t) 56% --> calculated before LODGING
Premium Weighted average cost of capital Marriott International Restaurant
Marriott Case 1. What is the WACC for Marriott Corporation? Cost of Debt Tax Rate We determined this number by taking income taxes paid/EBITDA = 175.9/398.9 = 44.1% Return on debt There are two clear components of debt: fixed and floating. In order to get the fixed debt rate we took the interest rates on fixed-rate government securities and added the premium
Premium Finance Marriott International Interest
Marriot Corporation: Cost of Capital By Xue Fan Background Marriott Corporation began in 1927 with J. Willard Marriott’s root beer stand. Over the next 60 years‚ the business grew into one of the leading companies in industry in United States. In 1987‚ Marriott’s sales grew by 24% and its return on equity stood at 22%. Sales and earnings per share had doubled over the previous 4 years‚ and the company strategy was aimed at continuing this trend. Marriot Corporation had three major lines
Premium Generally Accepted Accounting Principles Marriott International Financial ratios