hotel assets invest in projects that increase shareholder value‚ optimize the use of debt in the capital structure‚ and repurchase undervalued shares 2) Marriott uses WACC to measure the opportunity costs of capital of investments with similar risks. Each division of Marriott has a different cost of capital‚ based on debt capacity‚ debt cost‚ and equity cost. They use the estimate of cost of capital to determine the fraction of debt that should be floating rate debt. WACC is also used to determine
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rates 7 Components of weighted average cost of capital (WACC) 7 Free cash flows and economic profit 7 BIBLIOGRAPHY 9 SUMMARY As a student analyst for Drake University’s Krause Challenge Fund‚ I have conducted a financial analysis and valuation of Olin Corporation‚ a producer of Chlor Alkali products and Winchester ammunition. Olin has recently undergone restructuring and acquired the other half of a previously owned subsidiary‚ which I expect to reduce operating costs. The current market price
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evaluate the potential investment of expanding production capacity at Hansson Private Label (HBL) and make a recommendation to Tucker Hansson. In this report‚ I will specifically focus on analyses of the project’s free cash flows (FCFs)‚ weighted average cost of capital (WACC) and net present value (NPV). With a sensitivity analysis‚ it can help us to observe how change in some key project variables would make the project stronger and weaker. This report can provide efficient information for Hansson
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Determine the Weighted Average Cost of Capital (WACC) based on using retained earnings in the capital structure. In order to find the WACC‚ we need to find the cost of the components of the capital structure and their proportion in the total capital. Cost of Debt – To find the cost of debt‚ we use the details of the bonds issued by Rollins Instruments. The bonds have 20 years to maturity‚ pay interest at 9.3%‚ have a par value of $1‚000 and are currently selling for $890. The cost of debt is
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Marriott Corporation Evaluating the cost of capital 1. What is the weighted average cost of capital for Marriott Corporation? 1 (a) What risk-free rate and risk premium did you use to calculate the cost of equity? R (f)‚ or risk free rate used for calculating cost of equity was the Geometric Mean (GM) for LT US govt. bond returns (Exhibit 4). We used the overall GM of 1926-1987 of 4.27%. This is because this is the period that Marriott has been in operation and would be a good reflection
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CASE STUDY 1: The Wm. Wrigley Jr. Company capital structure‚ valuation‚ and cost of capital [10 MARKS OUT OF 100 MARKS TOTAL] Semester 1‚ 2013 Background: The term capital structure refers to the way a corporation finances its assets through some combination of equity and debt. Each form has its own benefits and drawbacks and firm managers attempt to find the perfect capital structure in terms of risk / reward payoff for shareholders. See these podcasts:
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the William Wrigley Jr. Company (referred to as Wrigley). The chosen capital structure is based on efforts to minimize the Weighted Average Cost of Capital (WACC) while also reducing increases in the cost of equity. The following pertains to analysis performed at four proposed levels of debt. In the base case‚ the corporation increases its debt level to 3 billion dollars. In this situation‚ the cost of equity is 11.05% and the cost of debt is 13%. This creates a WACC of roughly 10.302%. Given the financial
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ideas. Economic Profit Is a Performance Metric To understand economic profit‚ it helps to distinguish between a performance metric and a wealth metric. A performance metric refers to a measure under company control‚ such as earnings or return on capital. A wealth metric‚ on the other hand‚ is a measure of value that - such as equity market capitalization or the price-to-earnings (P/E) multiple -depends on the stock market’s collective and forward-looking view. Now‚ although these two types of metrics
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Marriott’s financial strategy consistent with it’s growth objective? How does Marriott use its estimate of its cost of capital? Does this make sense? What is the weighted average cost of capital for Marriott Corporation? What risk-free rate and risk premium did you use to calculate the cost of equity? How do you measure Marriott’s cost of debt? Did you use arithmetic or geometric averages to measure rates of return? What type of investments would you value using Marriott’s WACC? If Marriott use a
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market portfolio is often represented by: A. a portfolio of U.S. Treasury securities. B. a diversified stock market index. C. an investor ’s mutual fund portfolio. D. the historic record of stock market returns. 3. A stock ’s beta measures the: A. average return on the stock. B. variability in the stock ’s returns compared to that of the market portfolio. C. difference between the return on the stock and return on the market portfolio. D. market risk premium on the stock. 4. If the slope of the line
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