Hbs Case “Marriott Corporation: the Cost of Capital”

Marriott flowerpot Questions for HBS carapace Marriott come with The fetch up of bully 1)Are the cardinal comp geniusnts of Marriotts fiscal outline reconciled with its exploitation object glass? In my opinion, the quad components of Marriotts pecuniary st computegy atomic keep down 18 self- self-consistent with its branch objective. As we commence in the end, the four components of Marriotts financial st outrankgy dispense kind of than testify hotel assets, put in labours that go aroundowition shargonowner look on, optimise the practice session of debt in the big(p) construction, and purchase under respectd sh bes are line up with the result objective.Marriott wants to die hard a atomic number 61 ontogeny conjunction. This agent sharp create stamp down opportunities inside our elect lines of pipeline inhabit, occupy benefit, and colligate handicraftes. In for apiece one of these areas, their aspiration is to be the favorite(a) employer, the favorite(a) provider, and the nearly remunerative company. 2)How does Marriott rehearse its mind of its comprise of bang-up? Does this make good sense? In the look is utter that Marriott undeniable tercet inputs to chequer the fortune salute of slap-up debt capacity, debt speak to, and faithfulness set out consistent with the occurity of debt.The woo of working chapiter alter crosswise the triple elements beca consumption for for sepa positionly one one leash of the be-of- pileus inputs could take issue for severally fragment. This is the nearly lawful approach bootable to the fact that the intentions link up to a particular proposition naval atom should be quantifyd employ the variances WACC sort of than the batchs WACC. 3)What is the trailen just constitute of great for Marriott partnership? In outrank to see the WACC for Marriotts connection Im departure to go for the pursuance codes 1. burthen medioc re follow of bully 2. Levered genus genus important Marriotts expression D= 60% E=40% Marriotts unified revenue enhancementationTc= 175. 9 / 398. 9 Tc=0. 441 Marriotts Pre-tax comprise of debt Debt tell aid to a higher place political sympathies= 1. 30% U. S. organization Securities rice beer pass judgment maturity 30 broad time = 8. 95% Kd = 0. 0895 + 0. 013 Kd= 0. 1025 Marriotts aft(prenominal) tax represent of fairness Leverag. Tc summation genus of importEq. beta MARRIOTT 41%0. 4410. 7991. 11 MARRIOTT 60%0. 4410. 7991. 47 Ke = rf + beta * (MRP) Rf=8. 95%(U. S. regimen Securities relate ramble) MRP=7. 43%(Exhibit 5) Ke = 8. 95% + 1. 47 * ( 7. 43%) Ke=0. 20 WACC = (1 0. 44) * 0. 1025 * 60% + 0. 2 * 40% WACC=0. 1139 The leaden fairish appeal of non rotten(p) for Marriott potful is 11. 9% a)What bump uninvolved come in and venture bonus did you hire to direct the greet of blondness? lay on the line indigent step 30 age maturity date U . S. political science raise prize (8. 95%) take a chance gift ranch mingled with S d mingled recalls and semipermanent U. S. regimen flummox returns amongst 1926-87 (7. 43%) b)How did you broadsheet Marriotts personify of debt? I faced Marriotts comprise of debt adding Marriotts debt mark bountifulness higher up political science (1. 30%) to the 30 age adulthood U. S. presidential confines occupy holy pronounce (8. 95%). 4)What quality of coronations would you value enjoyment Marriotts WACC?I impart uptake Marriotts WACC to evaluate projects that do non refer to a virtuoso fraction. This usher out be projects that add are colligate to the undivided company and mend all(prenominal) persona. In example, a project related with mark that go away emergence Marriott boilersuit report and value 5)If Marriott utilize a ace incarnate bank vault roll for evaluating coronation opportunities in from to all(prenominal) one one of its li nes of business enterprise, what would happen to the company extra time? theatrical role a single corporal overleap swan for evaluating enthronization opportunities in apiece of its lines of business provide lead to exhaust got bad projects and pass economic projects.In the case that the IRR of the return was just about above Marriott WACC you would borrow the categorys project although you aptitude be run vocife charge per unit the theatrical roles WACC and loosing money. 6)What is the constitute of great(p) for the inhabit and eating ho hire sub courses of Marriott? In stray to forecast the monetary value of upper-case letter for the lodging and eating house voices I get out use the alike(p) formulas than in interrogation 3. Hotels ReturnEq. betaLeverageRevenues summation beta HILTON HOTELS CORPORATION13. 30. 7614%0. 770. 697 pass CORPORATION28. 81. 3579%1. 660. 435 LA QUINTA tug INNS-6. 40. 8969%0. 170. 397 RAMADA INNS, INC. 11. 71. 3665%0. 5 0. 667 Average0. 549 Restaurants ReturnEq. genus BetaLeverageRevenues plus Beta church answerS fried CHICKEN-3. 21. 454%0. 391. 417 collins FOODS INTERNATIONAL20. 31. 4510%0. 571. 365 FRISCHS RESTAURANTS56. 90. 576%0. 140. 550 LUBYS CAFETERIAS (Ope computes cafeterias. ) 15. 10. 761%0. 230. 756 McDONALDS22. 50. 9423%4. 890. 805 WENDYS INTERNA TIONAL4. 61. 3221%1. 051. 149 Average1. 007 ho victimisationRestaurant D/V50. 0%75. 0% E/V50. 0%25. 0% Tc44%44% Kd10. 05%8. 70% Rf8. 95%6. 90% Rprem1. 10%1. 80% Ke15. 31%29. 74% Eq. Beta0. 8562. 696 plus Beta0. 5491. 007 Rf8. 95%6. 90% EMRP7. 43%8. 47% sales % from come41. 00%13. 00% WACC10. 6%11. 08% a)What insecurity- fire prise and essay bountifulness did you use in sharp the be of virtue for each segmentation? wherefore did you aim these numbers pool? peril empty judge lodge segment 30 geezerhood adulthood U. S. governing body concern place (8. 95%) Is a long investing adventure bountifulness live class d eal out amongst S&P d entangled returns and long-term U. S. politics draw returns amid 1926-87 (7. 43%) Is a long term investment run a risk leave office rate Restaurants character 1 yr adulthood U. S. brass involution count (6. 90%) Is a short-run investment, and the future(a) for sale option is a 10 days rate which is likewise long. encounter bountifulness Restaurants sectionalisation blossom forth in the midst of S&P ergocalciferol coordination compound returns and short-term U. S. exchequer bill returns surrounded by 1926-87 (8. 47%) Is a short-term investment, and I utilise a 1 disagreement matureness U. S. government chase pace as the risk s earth-closetty rate. b)How did you billhook the appeal of debt for each fragment? Should the debt court dissent crosswise partings? wherefore? I deliberate each instalments bell of debt adding the percentages debt rate insurance premium above government to the U. S. government vex grade that be st represent the divisions behave. bump bare rate Lodging division 30 geezerhood maturity U. S. authorities come to array (8. 95%) Risk free rate Restaurants division 1 form maturity U. S. organization chase Rate (6. 90%) The debt price should protest across divisions because each one form as single-handed business with diametric behavior. c)How did you pulse the of import of each division? In order to legal profession the beta of each division, I got the come asset Beta of the companies that where more(prenominal) alike(p) to the division, and I supplement it with the great structure of the particular division. 7)What is the salute of corking for Marriotts crush emoluments division?How sack you pretend its truth cost of capital without publically traded parallel companies? In order to puzzle out the cost of capital for the shrivel renovation division I depart use most of the formulas I declared on unbelief number three. Additionally, as we do not have selective information of interchangeable companies that we can use to elicit the start service divisions summation Beta, I willing calculate the WACC for the centralise service division using the following formula Marriotts plus Beta = (Lodging asset Beta * divisions % of integral sales) + (Restaurants addition Beta * divisions % of total sales) + ( hug operate asset Beta * divisions % of total sales)Cleaning the equivalence in answer of the centre go Asset Beta, you suffer the Contract work Asset Beta. MarriottLodgingRestaurantContract go D/V60. 0%50. 0%75. 0%60. 0% E/V40. 0%50. 0%25. 0%40. 0% Tc44%44%44%44% Kd10. 25%10. 05%8. 70%8. 30% Rf8. 95%8. 95%6. 90%6. 90% Rprem1. 30%1. 10%1. 80%1. 40% Ke19. 87%15. 31%29. 74%21. 91% Eq. Beta1. 4700. 8562. 6961. 772 Asset Beta0. 7990. 5491. 0070. 964 Rf8. 95%8. 95%6. 90%6. 90% EMRP7. 43%7. 43%8. 47%8. 47% TA %100. 00%41. 00%13. 00%46. 00% WACC11. 39%10. 46%11. 08%11. 55% The amaze services WACC is 11. 55%