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
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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
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does Marriott use its estimate of its cost of capital? Does this make sense? Marriott has defined a clear financial strategy containing four elements. To determine the cost of capital‚ which also acted as hurdle rate for investment decision‚ cost of capital estimates were generated from each of the three business divisions; lodging‚ contract services and restaurants. Each division estimates its cost of capital based on: Debt Capacity Cost of Debt Cost of Equity All of the above are calculated
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Organizational Structure Throughout the last three to four decades‚ since Walt Disney World opened its theme park in 1971‚ the park has undergone an incredible transformation. When the park originally opened only three rides were available and now after adding new rides‚ attractions‚ and other developments‚ there is over forty seven square miles of space. Not only is there the actual theme parks themselves‚ but Disney also branches out into resorts‚ hotels‚ golf courses‚ campgrounds‚ water parks
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1. Which of the following would increase the likelihood that a company would increase its debt ratio in its capital structure? a. An increase in costs incurred when filing for bankruptcy. b. An increase in the corporate tax rate. c. An increase in the personal tax rate. d. None of the statements above is correct. ANSWER: B An increase in the corporate tax rate would mean that firms would get larger tax breaks for interest payments. Therefore‚ firms have an incentive to increase interest payments
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SOLVENCY AND CAPITAL STRUCTURE Debt to total assets ratio Debts to total assets | 2011 | 2010 | Walt Disney Co. October* | 0.48 | 0.46 | Time Warner Inc. December* | 0.56 | 0.51 | Industry Average | 0.36 | 0.33 | The Debt to Total ratio measures the amount of debt a business has in proportion to assets and is also an indicator of financial leverage and shows the percentage of total assets that were financed by creditors‚ liabilities‚ debt. The debt to total assets ratio
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Marriott Corporation: The Cost of Capital (Abridged) Executive Summary: The case &quot;Marriott Corporation: The Cost of Capital (Abridged)&quot; focuses on an ideal opportunity to review the capital asset pricing model and the weighted average cost of capital through calculation of the cost of capital for Marriott as a whole. Dan Cohrs is faced with making recommendations for the hurdle rates at Marriott Corporation and its three divisions utilizing CAPM and WACC. This case illustrates
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The electronic private automatic branch exchange (EPABX) is equipment that has made day-to-day working in the offices much simpler‚ especially in the area of communication. The EPABX may be defined as a switching system that makes available both internal and external stitching functions of any organisation. The selection of an EPBAX is a difficult task and requires deep knowledge of traffic pattern of the office. By using an EPABX both the internal and external needs of the organisation are
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The Oceanic Corporation (Determining the Cost of Capital) Larry Stone wants to estimate the firm’s hurdle rate because it is a benchmark for how well the company needs to do on a project in order to at least break even. The higher the hurdle rate‚ the riskier the project will have to be and the lower the hurdle rate is‚ the safer the project will be for a company. A company should strive for a financing mix that minimizes the hurdle rate and matches the assets being financed. If there
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The Walt Disney Company’s Yen Financing 2012/6/3 Case Study in COMM 328 Q1. Yes‚ Walt Disney Company should hedge its yen royalty cash flow for the following reasons: JPY royalties grows fast: The Walt Disney Company has been receiving yen royalties for several revenues generated by Tokyo Disneyland. During the fiscal year 1984‚ yen royalty receipts had been just over 8 billion yen and this figure is expected to increase 10% to 20% yearly over the next few years. Given that the expenses
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