Marriot Case Brief 1. What is the weighted Average Cost of Capital for Marriot Corporation? WACC for Marriott Corp is 11.89 WACC of divisions: Lodging 10.29‚ Restaurant 13.49‚ Contract Services 13.615 a) What risk-free rate and the risk premium did you use to calculate the cost of equity? We used 8.95% as the risk free rate (LT Government Debt) and the MRP we used was 7.43%‚ which means are expected market return is 8.95+7.43=16.38% b) How did you measure Marriott’s cost of debt? We added
Free Arithmetic mean Average Weighted average cost of capital
division and company. Only project with positive NPV discounted by hurdle rate will be invested‚ and the total return of Marriott up to all projects invested. Though there are many subjective aspects in estimation of WACC‚ common view and accepted formula will be adopted to calculate WACC‚ discretion if prudent used. Key factors 1. Key factors of debt a) Tax rate Tax rate is based on state policy and net income of the company. Since tax rate of 1988 is not expected to change‚ tax rate of 1987 is
Premium Debt Weighted average cost of capital Leverage
Overview The footwear industry is a mature‚ very competitive with low growth and stable profit margins. Active Gear‚ Inc. is a privately held footwear company which is a profitable firm in the industry with $470.3 million revenue in 2006. West Coast Fashions‚ Inc is a large business of men’s and women’s apparel decided to dispose of one of their divisions: Mercury Athletic with $431.1 million revenue in 2006. AGI is very profitable but it is smaller than other competitors‚ which is becoming a competitive
Premium Discounted cash flow Weighted average cost of capital Net present value
cost. Since WACC is the minimum return required by capital providers‚ managers should invest only in projects that generate returns in excess of WACC. There are four main issues: a) If Cohen should estimate different costs of capital for the footwear and apparel divisions or use a single one instead. I agree with the use of the single cost of capital. It is sufficient for this analysis‚ since Nike’s business segments have very similar risks. b) Calculating the Cost of Capital WACC: Cohen is wrong
Premium Financial markets Investment Mathematics
for investors as well as which firms should be identified as comparables. 1. How are Mortensen’s estimates of Midland’s cost of capital used? How‚ if at all‚ should these anticipated uses affect the calculations? 2. Calculate Midland’s corporate WACC. Be prepared to defend your specific assumptions about the various inputs to the calculations. Is Midland’s choice of equity market risk premium appropriate? If not‚ what recommendations would you make and why? 3. Should Midland use a single corporate
Premium Economics Risk Weighted average cost of capital
Worldwide Paper Case Study Incorporated in 2001‚ Worldwide Paper Company (WPC) is a corporation which is always focus on providing finest paper products to its clients and stakeholders. Headquartered in UAE‚ WPC’s most sales are distributed from the regions of Middle East‚ Asia‚ Africa and Levant. As a global company nowadays‚ the area of operation of WPC includes paper trading-commodity and conventional grads‚ indenting and custom order-commodity and conventional grades‚ merchanting and stock
Premium Net present value Revenue Inventory
to evaluate Nike as a viable choice‚ Kim has to calculate the cost of capital for the company and make sure assumptions are a direct function from the estimates. The cost of capital calculation or WACC helps to see if an investment is worthwhile to undertake. However‚ the assumptions made to calculate WACC‚ in this case‚ are the underlying problem because some of the assumptions made are incorrect. Analysis Nike held a meeting to discuss company performance at 2011 end of fiscal year. In the
Premium Weighted average cost of capital Stock Stock market
There are several different methods that can be used to find the WACC and use it to decide whether a stock will be a good buy or not. The Earning’s Capitalization Model is not appropriate in this case because it does not work well for growing companies‚ as Nike is trying to do‚ and the Dividend Discount Model has several subjective inputs making it inferior to the CAPM method of determining WACC. Using this method Nike’s WACC is found to be 9.8%. Using this Nike is found to have very good returns
Premium Security Mutual fund Stock market
capital [WACC]. The estimation of Boeing’s WACC must be consistent with the overall valuation approach and the definition of cash flows to be discounted. Note that this process is a forward looking focus and is laden with uncertainty. It is how the assumptions are modeled that many costly mistakes can be made. While finding a rate of return for an individual project‚ it is important to remember that WACC is only appropriate for an individual project. The many factors affecting WACC are:
Premium Stock market Capital structure Financial ratios
for capital budgeting rather than Return on Investment (ROI) method and Payback Period method. Secondly‚ I calculate the Weighted Average Cost of Capital (WACC) which will be used as discount rate while calculating NPV. Then‚ I decide which rapid prototyping system company should invest as well as I compare the each expansion projects’ IRR with WACC to decide which projects should be invested and which should not. After deciding projects which should be accepted‚ I draw Investment Opportunity Schedule
Premium Net present value Finance Rate of return