Case Questions Case #5 – Marriott Corporation: The Cost of Capital 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? 2. How does Marriott use its estimate of its cost of capital? Does this make sense? 3. What is the weighted average cost of capital for Marriott Corporation? a. What risk free rate and risk premium did you use to calculate the cost of equity? b. How did you measure Marriott’s cost of debt? 4. If Marriott used a single corporate
Premium Weighted average cost of capital Arithmetic mean Average
Finance and Growth Strategies QUESTION 1 a) Distinguish between systematic and unsystematic risk. as the only relevant risk and why? b) In the context of the Capital Asset Pricing Model how would you define beta? How are betas determined and where can they be obtained? limitations of betas? c) What information does beta give to a financial manager? What are the Which is often regarded QUESTION 2 a) What is the time value of money? flows? b) What factors need to be taken into account when choosing
Premium Net present value Rate of return
Medium‚ and T = Tough) Multiple Choice: Conceptual Easy: Capital components Answer: c Diff: E [i]. Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC) as it applies to capital budgeting? a. Long-term debt. b. Common stock. c. Accounts payable and accruals. d. Preferred stock. Capital components Answer: d Diff: E [ii]. For a typical firm with a given capital structure
Premium Weighted average cost of capital Interest Dividend yield
The risk-free rate is 1.5%‚ and the market risk premium is 5.0%. (a) What is next year’s projected dividend? The projected dividend D1 is D1 = D0 (1 + g) = $1.32 × 1.05 = $1.386 or $1.39 . 1 (1) (b) What is BP’s cost of equity capital based on the CAPM? The cost of equity capital rBP is rBP = rf + β [E(rm ) − rf ] = 1.5% + 0.87 [5.0%] = 1.5% + 4.35% = 5.85% .
Premium Dividend yield Asset Balance sheet
than the cost of capital is usually required. The cost of debt is relatively simple to calculate‚ as it is composed of the rate of interest paid. In practice‚ the interest-rate paid by the company can be modeled as the risk-free rate plus a risk component (risk premium)‚ which itself incorporates a probable rate of default (and amount of recovery given default). For companies with similar risk or credit ratings‚ the interest rate is largely exogenous (not linked to the cost of debt)‚ the cost of equity
Premium Interest Investment Finance
Model (CAPM): ra = rf + Ba (rm-rf) where: rf = the rate of return on risk-free securities (typically Treasuries) Ba = the beta of the investment in question rm = the market’s overall expected rate of return Let’s assume the following for Company XYZ: Next year’s dividend: $1 Current stock price: $10 Dividend growth rate: 3% rf: 3% Ba: 1.0 rm: 12% Using the dividend growth model‚ we can calculate that Company XYZ’s cost of capital is ($1 / $10 ) + 3% = 13% Using CAPM‚ we can
Premium Stock market Stock Investment
Should I Pursue a Project Management Certification? CAPM® | PMP® | PgMP® | PMI-ACP SM | PMI-RMP® | PMI-SP® www.PMI.org Skilled project managers are in demand around the world. A globally recognized project management certification shows employers that you have the knowledge‚ experience and education to effectively contribute to project team success. The four-step process outlined here will show you the pathway to applying for‚ earning and maintaining a PMI certification—an important investment
Premium Project management
discuss the various components of latter. 12. Discuss the Capital Asset Pricing Model (CAPM) and explain how it deals with the problem of securities valuation of the market. 13. Explain how the Efficient Market Hypothesis (EMH) deals with the reaction of the market prices to the financial and other data. 14. Explain the concept of the trade-off between risk and return as well as its significance to portfolio construction. 15. Discuss the implications that the CAPM and EMH present for
Premium Financial statements Income statement Cash flow statement
services. His most recent task was to develop a presentation in regards to the different types of risks investors may come across when investing their money with Roth Financial. Steve’s task was to break down different types of risk into its simplest components and to figure out a way to show clients how risk was treated in financial markets and when making investments decisions. Hugo Roth has provided several sets of numbers for Steve to use in his presentation. The first set of numbers was a group
Premium Investment Financial markets
Corporation Ltd.to small-scale industries in the country http://www.dcmsme.gov.in/partners/nsic.htm#MjSc MIB What are the inherent strengths an opportunities lading to global competitiveness in the following sectors: a) Auto component b) Pharmaceutical c) fMCG
Premium Economics Financial services Financial markets