| Case Study Marriott Corporation | | | | |

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08. April 2014

Table of Contents
1 Are the four components of Marriot`s financial strategy consistent with its growth objective? 1
2 How does Marriott use its estimate of its cost of capital? Does it make sense? 3
3 What is the WACC for Marriott Corporation? 3
3.1 Risk free rate? Market risk premium? 3
3.2 Cost of debt? 4
4 What type of investments would you value using Marriott´s WACC? 6
5 If Marriott used a single corporate hurdle rate for evaluating investment in each of its lines of business, what would happen to the company over time? 7
6 What is the cost of capital for the lodging and restaurants divisions of Marriott? 8
6.1 What risky free rate and risk premium did you use in calculating the cost of equity in each division? 8
6.2 How did you measure the cost of debt for each division? Should the debt cost differ across divisions? 8
6.3 How did you measure the Beta of each division? 9
7 What is the cost of capital for Marriott´s contract service division? How can you estimate its equity costs without publicly traded comparable firms? 11
8 Bibliography 13

Are the four components of Marriot`s financial strategy consistent with its growth objective?
Marriott Corporation is an international company whose sales in 1987 grew by 24% and its return on equity was at 22%.The three lines of business are lodging, contract services and restaurants. The main goal consists of developing and enhancing its position in each of the lines of business. This contains three other components: being the preferred employer, the preferred provider and the most profitable company.
To achieve the goals the company has developed a financial strategy with four components. I will examine now if those are consistent with the goals.
Manage rather than own hotel asset:
Holding the whole hotel