Case Study: Marriott Corporation The Cost of Capital Teresa Cortez Keith Gemmell Brandon Papsidero Robin Reschke October 28‚ 2013 Table of Contents 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? ..................................
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Any company’s assets are either financed by its debt or by its equity. The Weighted Average Cost of Capital is the average costs of these sources of financing‚ each of which is weighted by its respective use in the given situation. By taking the weighted average‚ we can see how much interest the company has to pay for every dollar it finances. Basically‚ the WACC is the minimum required return that the company must earn to satisfy its creditors‚ owners‚ and other providers of capital‚ or they will
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for the current costs of its three basic sources of capital—long-term debt‚ preferred stock‚ and common stock equity—for various ranges of new financing. Source of Capital Range of New Financing After Tax Cost Long-term debt $0 to 320‚000 6% $320‚000 and above 8% Preferred stock $0 and above 17% Common stock equity $0 to $200‚000 20% $200‚000 and above 24% The company’s capital structure weights used in calculating its weighted average cost of capital are shown
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Weighted Average Cost of Capital: Home Depot‚ Inc. Second Project FIN515 – Managerial Finance Instructor: Prof. David Eichenholtz Group: John Okogeri Fiona Harrison-Butts Haider Chaudhry Mia O’Blenis Christopher Cardenas Date: April 5‚ 2015 TABLE OF CONTENTS Introduction 3 company profile 3 WACC calculation 4 explanation of calculation/results 5 Limiting factors 5 Conclusion 6 references 7 Weighted Cost of Capital: Home Depot‚ Inc. Introduction The purpose of this project
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its cost of capital? Does this make sense? c. 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 did you measure Marriott’s cost of debt? 1. Are the four components of Marriott ’s financial strategy consistent with its growth objective? 2. How does Marriott use its estimate of the cost of capital? Does this make sense? 3. Using the CAPM‚ estimate the weighted average cost
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1) Why do you think Larry Stone wants to estimate the firm’s hurdle rate? Is it justifiable to use the firm’s weighted average cost of capital as the divisional cost of capital? Please explain. Larry Stone wants to calculate the firm’s hurdle rate because he wants to have a more reliable basis of information before accepting projects for the company. By determining the firm’s hurdle rate‚ their company will also be able to make prudent decisions using accurate data. He also thinks that they should
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memo addressing the following issues. Please include the Excel sheets to support your answers. 1. How are Mortensen’s estimates of Midland’s cost of capital used? How‚ if at all‚ should these anticipated uses affect the calculations? Janet Mortensen‚ Senior Vice President of project finance for Midland Energy Resources has calculated yearly annual cost of capital investments for Midland and each of its three divisions. The three divisions consist of oil and gas Exploration and Production (E&P)
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has never paid a dividend. Its current free cash flow of $400‚000 is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC’s value of operations. (13-3) Horizon Value Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012‚ and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2012? | Actual | Projected | | 2010 | 2011
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minimizing costs‚ and gaining and effectively using financial leverage to grow its business‚ while also aligning its goals and value-driven strategies to maximize share holder wealth‚ and achieve its short- and long-term objectives through delivering the value and services that the marketplace requires. The following discussion presents an in-depth analysis of Marriott’s financial position (through 1987) according to the Harvard Business Review Case‚ Marriott Corporation: The Cost of Capital (9-298-101)
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Weighted Average Cost of Capital (WACC) Calculations The weighted average cost of capital (WACC) is the discount rate used in the discounted cash flow analysis. Usually‚ the WACC is the weighted average of the cost of debt (Kd) and the cost of equity (Ke)‚ since debt and equity are the most common sources of funds for the companies. In general‚ the formula for WACC is the following: As implied by the formula itself‚ if a company does not have interest-bearing debts‚ then its WACC would equal
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