The cost of capital case study solution, marriott corp: the cost of capital xls file, marriott corp: the cost of capital excel file, subjects covered capital costs capital structure cash flow valuation by richard s ruback source: hbs premier case collection 11 pages. The cost of capital case study solution, marriott corp: the cost of capital case study analysis, subjects covered capital costs capital structure cash flow valuation by richard s ruback source: hbs premier case collection 11 pages. (a) diversification, the capital asset pricing model, and the cost of equity capital, spanish version the wm wrigley jr company: capital structure valuation and cost of capital globalizing the cost of capital and capital budgeting at aes globalizing the cost of capital and capital budgeting at aes.
The four components of marriott's financial strategy are to manage rather than own hotel assets, to invest in projects that increase shareholder value, to optimize the use of debt in the capital structure, and to repurchase undervalued shares when necessary. Case: marriott corporation: the cost of capital (hbs 9-289-047) purpose: to show how to use the capital asset pricing model to compute the cost of capital for the company and for each of its divisions. Case questions • what is the cost of capital for marriott's as a whole at the prevailing capital structure vs at the target capital structure be prepared to defend your specific assumptions about the various inputs adopted into equations. Marriott corporation has three divisions: lodging, contract services and restaurants the weighted average cost of capital (wacc) for marriott corporation as a whole is 1213% given that the corporate tax rate in 1986 is 34.
Since it is given that marriott's unlevered beta is 97, its tax rate is 441%, and has 60% debt in its capital structure, we can unlever to see that marriott as an entire firm has an unlevered beta of 79. Marriott's cost of capital estimation process marriott uses the weighted average cost of capital (wacc) to determine its corporate hurdle rate or to cheaply remove stock when the market it trading it at a steep discount to historical trends when the company is performing well. Duke university fuqua school of business finance 251f/351 hint sheet: marriott corporation prof simon gervais spring 2010 - term 1 in this case, you will use the capm model to compute the cost of capital for a whole company. The couple were john willard marriott and his wife, alice, that little restaurant in the nation's capital grew into the worldwide chain of marriott hotels marriott's financial strategy is broken down into four key elements. The debt over capital structure is 41% and equity to the total capital is 59% for marriott incorporation this structure is for the total of these three divisions that combines to make the marriot incorporation (appendix 1.
Marriott's discount rate is average meaning it is using relatively less money to acquire capital a low wacc in most cases indicates a higher percentage of debt capital in the capital structure if all other factors are held constant. Finally, we weight the cost of each kind of capital by the proportion that each contributes to the entire capital structure this gives us the weighted average cost of capital (wacc), the average cost of each dollar of cash employed in the business. Marriott determined the amount of debt in its capital structure by focusing on its ability to service its debt it used an interest-coverage target instead of a target debt-to-equity ratio in 1987, marriott had about $25 billion of debt, 59% of its total capital. Now that we understand what wacc weighted average cost of capital is, we now need to understand how to calculate wacc weighted average cost of capital to do this, we calculate the cost of each component of wacc weighted average cost of capital, and then weight each cost relative to its place in the capital structure. What is weighted average cost of capital or wacc one of the best and most commonly used measures of the riskiness of projected cash flows (and the best way to determine the correct range of discount rates) is the weighted average cost of capital (wacc.
- marriott's growth in lodging, and as a whole, would be reduced over time marriott projects different divisions may have different risks the division's wacc should be adjusted to reflect the division's risk and capital structure annual incentive compensation constitutes 30% - 50% of base. To calculate marriott's wacc, we need to assess three factors 1) capital structure, 2) cost of debt, 3) cost of equity as the corporate tax rate is given we will not manually calculate it if required we would have used the financial statement in appendix 1 to do so. Oct 2 case: marriott cost of capital case preparation case questions oct 4 debt and taxes bh 144a oct 9 optimal capital structure bh 144b, 144c, 144e. Capital structure weight - the cost of capital should reflect the riskiness of the project being evaluated - thus a firm should calculate multiple costs of capital when it makes investments in multiple. If marriott decide to deleverage totally their capital structure, their equity beta will come down significantly indeed, the more debt marriott have, the more risky is their equity (because their financial risk increases with their leverage ratio, even if their operational risk remains the same.
Finance 351 - corporate finance hint sheet: marriott corporation prof simon gervais fall 2011 - term 2 in this case, you will use the capm model to compute the cost of capital for a whole company and for each of its divisions to properly use wacc as a measure for the overall cost of capital, you need to consider the following issues. How a firm determines its financial policies—and its capital structure in particular—is the focus marriott's financial policies are used to illustrate the concept first is a discussion of marriott's capital structure and the importance of debt and equity. Marriott corp case study solution, marriott corp case study analysis, subjects covered capital structure debt management financial strategy stock offerings valuation by thomas r piper source: harvard business school 13 pages. Optimize the use of debt in the capital structure marriott invests a lot of money in long term assets that's why it is really necessary for the company to maximize and optimize its debt and the company has an a rating.
Iii administrative issues a course procedures for each class meeting, i will assign study questions concerning a case study for most of the. Marriott international, inc is a leading lodging company based in bethesda, maryland, usa opened in washington, dc in 1927 by j willard and alice s marriott it has more than 3,700 properties in 73 countries and territories.