1. What is the weighted average cost of capital for Marriot Corporation? Briefly outline the key assumptions that you made in computing the WACC. 2. What is the cost of capital for the lodging and restaurant divisions of Marriot Corporation? Briefly outline the key assumptions that you made in computing the cost of capital and outline any limitations that are presented by your analysis. 3. If Marriot uses a single company-wide cost of capital for evaluating investment opportunities in each of its
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Harvard Business School 9-298-101 Rev. March 18‚ 1998 Marriott Corporation: The Cost of Capital In April 1988‚ Dan Cohrs‚ vice president of project finance at the Marriott Corporation‚ was preparing his annual recommendations for the hurdle rates at each of the firm ’s three divisions. Investment projects at Marriott were selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division. In 1987‚ Marriott ’s sales grew by 24% and its return on equity stood
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9-204-109 REV: OCTOBER 23‚ 2006 MIHIR DESAI Globalizing the Cost of Capital and Capital Budgeting at AES In June 2003‚ Rob Venerus‚ director of the newly created Corporate Analysis & Planning group at The AES Corporation‚ thumbed through the five-inch stack of financial results from subsidiaries and considered the breadth and scale of AES. In the 12 years since it had gone public‚ AES had become a leading independent supplier of electricity in the world with more than $33 billion in assets
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Variable Cost Behavior [LO1] Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1‚200 and the variable cost per cup of coffee served is $0.22. Requirement 1: Fill in the following table with your estimates of total costs and cost per cup of coffee at the indicated levels of activity for a coffee stand. (Round average cost per cup of coffee to 3 decimal places. Omit the "$" sign in your response.) 2‚000 Fixed cost Variable
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Prepare a variance analysis report based on the information in Exhibit 1. Would this be sufficient to explain the profit shortfall to Norton at the 8 AM meeting? This revenue variance is positive and favorable. That means they made more than the budget. However‚ the variance amount of expenses was $342‚060‚ which was unfavorable. That means they spent more than what they had budgeted for. The perform a variance analysis report Jenkins calculated would not be sufficient in order to explain to Norton
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finance framework and the CAPM model‚ for example‚ have to say about risk? What is it? How is it approached? The traditional finance framework uses discounted expected future cash flow to determine the NPV of the project. The amount of the opportunity cost is based on a relation between the risk and return of some sort of investment. People are rational and adverse to risk and need incentive to accept risk. The incentive in finance comes in the form of higher expected returns after buying a risky asset
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Operating leases are similar to renting‚ while capital leases are more like a loan. Capital leases are where a lessor transfers all the risks and benefits of ownership for a property to the lessee. An operating lease does the opposite and does not transfer all the risks and benefits to the lessee. In addition to transferring risks and benefits‚ there are other qualifications to be classified as a capital lease. The lease must contain a bargain purchase option. It has to be equal to 75% or more of
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Case Analysis of Nike‚ Inc.: Cost of Capital Apparently‚ the issue of Nike’s case is to control and check the calculation cost of capital done by Joanna Cohen who is the assistant of a portfolio manager at NorthPoint Group. But I am willing to tell you that it can be a complex case in which we can doubt about sensitivity analysis done by Kimi Ford (portfolio manager) because her assumptions such as Revenue Growth Rate‚ COGS / Sales‚ S &A / Sales‚ Current Assets / Sales‚ and Current Liability
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annual sales turnover is $180 million. SAI grew rapidly in its first years due to the semiconductor industry boom. As the industry began to slow down‚ SAI watched its revenues fall by 40%. SAI survived the decrease in revenues by cutting costs and freezing capital expenses. Shrewdly‚ SAI continued its research and development efforts and developed the IC 1032‚ a specialized chip used in data embedded mobile phones (Scenario‚ 2008. University of Phoenix). Hal Eichner‚ SAI Chairman‚ has a two point
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The Cost of Capital LEARNING OBJECTIVES After reading this chapter‚ students should be able to: • Explain what is meant by a firm’s weighted average cost of capital. • Define and calculate the component costs of debt and preferred stock. • Explain why retained earnings are not free and use three approaches to estimate the component cost of retained earnings. • Briefly explain why the cost of new equity is higher than the cost of retained earnings‚ calculate the cost of new
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