OPPapers.com Essay Index >> Business >> Marriott
We have many free term papers and essays on Marriott. We also have a wide variety of research papers and book reports available to you for free. You can browse our collection of term papers or use our search engine.
Marriott Corporation. ... Therefore, it would be incorrect to use a single cost of capital
for Marriott’s various divisions as each has it own risk factors. ...
Marriott: Cost of Capital. Marriott Case Marriott Corporation, an American firm,
has 3 major lines of business: lodging, contract service and restaurants. ...
Marriott Cost Of Capital. QUESTION 1 – Why does Marriott Corp need to set
up new hurdle rates for its businesses? The need to set ...
Marriott Case. QUESTION 1 Are the four components of Marriott´s financial
strategy consistent with its growth objective? With regards ...
Marriott Cost of Capital. Marriott cost of capital Objective: 1) Calculate the
divisional and the company cost of capital and explain the calculation. ...
Submitted by pthom662 on October 1, 2007
Category: Business
Words: 884 | Pages: 4
Views: 543
Popularity Rank: 14,783
Average Member Grade: N/A (Add a Comment / Grade this Paper)
In 1987, Marriott was focused on its cost of capital. The corporation was split into three divisions. The divisions were lodging, restaurants, and contract services. Marriott was also interested in focusing on four main points of business. They decided to focus on managing instead of owning hotel assets, invest in projects that increased shareholder value, optimize the use of debt in the capital structure and repurchase undervalued shares. They measured these new strategies and how they would affect the company with the weighted average cost of capital (WACC). Our group decided the most important question was, what is the most efficient calculation and usage of WACC for Marriot?
We began by selecting an appropriate risk-free rate and a market risk premium. The risk-free rate we selected is 3.48%. In selecting the risk-free rate, we used the geometric average return of short-term treasury bills from 1926 to 1987 because this average accounts for time as opposed to the arithmetic average. We used the range from 1926 to 1987, because the returns in the shorter time period ranges were much more volatile and did not predict the upcoming years as well. We selected our market risk premium using the geometric average return from 1926 to 1987 as well. After analyzing the spread between the S&P 500 composite returns and returns on short-term treasury bills, we chose 6.42% as our market risk premium.
After finding the appropriate risk-free rates and risk premiums, we began finding the Betas for each division of Marriott (Exhibit 1). We began by selecting an appropriate proxy firm for each of Marriott’s three divisions. Lodging was the first division we analyzed. La Quinta Motor Inns seem to be the best pure-play. La Quinta’s operations consisted of strictily lodging. It owns, operates, and licences motor inns which matches well with Marriott’s operations in the lodging division. In order to calculate the betas of this division, we had to find the cost of...
You must Login to view the entire paper.
If you are not a member yet, Sign Up for free!