...makes sense considering every division has their own unique risks. 3. (A) (Appendix (1)) the weighted average cost of capital for Marriott Corporation (using the formula in the document) is 8.81% according to our calculation. We used the tax rate of 44% from the tax rate they paid in (1987) and divided it by the income before taxes (1987). From table: A it gave us the D/V, 60%, which you can find the E/V, 40%. Finding the cost of debt the case gave, using US government interest rates for different years. In the case it states lodging assets had long useful lives we used the 30-year maturity 8.95%, also it states that restaurant and contract services divisions had shorter useful lives so we used the 10-year maturity 8.72% for both. Since Marriot was expected to pay a spread above the current government rate we took each subdivision and we added the corresponding premium it gave us and added it to Gov. Interest Rate and took the average of those, which gave us 10.23%. We then solved for the CAPM for the after tax-cost of equity. The risk-free rate was the 30-year Gov. Int. Rate, the market rate we used was S&P 500 composite stock index returns from 1926-1987 because it its measured the overall average return of the market since Marriott has been around. We used the leveraged beta they have us (1.11)...
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...in the project over and the current risk free rate. This is give as the difference between the market rate of return and the risk free rate. We have taken the Geometric average of the market returns (as proxied by the S&P index) and the risk free rate as considered above. A geometric average over a period from 1926-1987 has been considered in order to more accurately estimate the market rate of return by using the market return data over the longest period of time available. The market risk premium is normally assumed to be between 4% to 6%, since the calculated risk premium for each of the divisions and the company as a whole is lesser than 4%, we have assumed it to be 4%. The equity beta and market leverage for the various firms (Marriot and its comparables) has been given and using the following information we can compute the asset betas for the various firms in the industry: Asset Beta =Proportion of equity*Equity Beta + Proportion of debt*Debt beta β_A=E/(D+E) β_E+E/(D+E) β_D Debt beta is assumed to 0...
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...Corporation: cost of capital Prepare a case discussion report. The report must at least address the following issues 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? Marriot has following four financial strategy components * Manage rather than own hotel assets. * Invest in projects that increase shareholders values * Optimize the use of debt in the capital structure * Repurchased undervalued shares. The company operates in three divisions having following sales and profit figues (1987) 1. Lodging (41% of sales and 46% of profit) 2. Contract services (46% of sales and 33% of profit) 3. Restaurants (13% of sales and 16% of profit). 2. How does Marriott use its estimate of cost of capital? Does it make sense? Marriott measured the cost of capital for investments of similar risk using the weighted average cost of capital (WACC).Firm WACC is the overall required return on the firm as a whole and it is used by management to determine appropriate investments that could boost the return on its investment and profitability. 3. What is the WACC for Marriott Corp? a. What risk-free rate and risk premium did you use to calculate the cost of equity? Marriot uses CAPM ( Capital asset pricing model) evaluate cost of equity re = risk free rate + beta * risk premium Equity beta given is 1.11 but it is a leveraged beta . In order to eliminate the effect of leverage we will estimate...
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...Q1: Four components of Mariott’s financial strategy are consistent with its growth objectives. The growth objective is to increase sales and earnings per share. All of the four components of Mariott’s financial strategy are consistent with its growth objectives. Strategy one, managing rather than owning hotel assets, leads to decrease in cost. Save on the costs can be invested in more hotels and generate profits after pre-specified return. Strategy two, investing in projects that increase shareholders value with positive NPV, brings resources for future growth. Strategy three, optimizing the use of debt in the capital structure, supports the growth target, since debt is a cheaper than equity to finance the future growth. Strategy four, repurchasing undervalued shares, generates value for shareholders equivalent to positive NPV project. Q2: Ways Mariott uses its estimate of its cost of capital Marriott uses its estimate of its cost of capital to choose possible investment projects, determine incentive compensation and calculate the warranted equity value. Marriott uses different hurdle rates for different divisions to discount the future cash flow to decide which project to invest. It makes sense as projects for different divisions bear different risks. And Marriott sets different bonus awards for managers who have different responsibilities. And the awards are connected with divisional returns as well as divisional hurdle rates. This also makes sense as managers in different...
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...1) How much business risk does AHP face? How much financial risk would AHP face at each of proposed level of debt? a) General risks: • Strategic risk from internal management structure change, due to Laporte was approaching retirement that will cause another big waive of change for the whole senior management team as well as the company’s strategy. • Market risk. Pharmacy had not reached the heavy competition yet during early 1980s, AHP was still the early adopter in the industry, however, the nature of the market will change very quickly follow by the globalization and fast developing of medical technology, efficiency of information communication and financial industry. The competitor will able to launch variously strategies, with wild coverage of products via extended channels in more regions/counties. • Because of debt free strategy, the company had limited investment in R&D. Even they can provide the “me to product” but the industry will change with more related regulation to be generated from government, that will require each pharmacy company spend longer time, more money to do the testing before launch to the market, “me to product” will slow down the process to catch the new market segmentation. • Brand risk, due to the company was only focus on the interest of shareholders; lack of CSR (corporate social responsibility) will be another risk. • Over centralized power in the leadership even $500 expense need approved by CEO. Not easy money system and not enough flexibility...
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...Myers-Briggs content was added to the Foundations of Leadership curriculum a year and a half ago. Since then, Morris has seen type awareness spread throughout the company. Some program graduates have had the training delivered to their staff. And, although Foundations of Leadership is designed for new managers, one Marriott business unit provides the program for its senior managers as well. “Our focus on customer service has been strong for more than 70 years,” says Morris. “The added focus on understanding your own and others’ psychological type is making it even better. Self-understanding and the ability to ‘read’ others can make a big difference. Communications can be tailored to the recipient, and the communicator knows when and if he or she is not getting through. Teamwork is more effective. Learning about type preferences inevitably makes it easier for both managers and their staff to understand and relate to customers—and that is where the payoff comes in.” About CPP, Inc. Since its founding in 1956, CPP, Inc., has been a leading publisher and provider of innovative products and services for individual and organizational development. CPP has been supplying reliable training solutions to businesses of all sizes, including the Fortune 500, for more than 50 years. The company’s hundreds of unique offerings have been used by millions of individuals in more than 100 countries, in more than 20 languages, to help people and organizations grow and develop...
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...Национальный исследовательский университет Высшая школа экономики Факультет экономики Кафедра экономики и финансов фирмы Домашнее задание №8 По курсу «Корпоративные финансы-2» Кейс на тему «Анализ дивидендной политики компании «Mariott» Выполнили студенты: Группа 1 Абдухамидов Антон Гусамов Степан Данилова Екатерина Жегусов Владимир Исайчев Дмитрий Козловская Анна Москва 2011 Цель работы: Проанализировать решение компании по выкупу акций Задачи: * Дать описание компании и ее положения на рынке * Обосновать решение компании на основе теории * Провести практический анализ решений компании * Сделать выводы по проделанной работе Постановка проблемы Компания “Marriott” считает, что ее акций существенно недооценены (на рынке торгуются по цене $19,625). В связи с этим компания планирует выкупить 10 млн. акций (из 32 млн. выпущенных). Однако, выкупать акции планирует по цене на $4 выше текущей рыночной. Описание компании Marriott Corporation была основа в 1927 году. Изначально, компания специализировалась на ресторанном бизнесе и предоставляла контрактные услуги по обеспечению питанием на самолетах. В начале 40-х годов компания начинает предоставлять услуги в сфере гостиничного бизнеса. Гостиничный бизнес (35% выручки): компания распоряжается 23,000 комнат в 55 отелях, расположенных, в основном, в США. 70% комнат принадлежат внешним инвесторам и управляются компанией на основе 70-летних соглашений. Контрактное питание (32% выручки):...
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...1) Are the four components of Marriott's financial strategy consistent with its growth objective? • Manage rather than own hotel assets. o Profiting from the sale of its hotel assets while still generating revenue from those assets, reduces risk increases ROA, profitability, and frees up cash for other positive NPV opportunities. This process is consistent with its strategy of growth. • Invest in projects that increase shareholder value. o As long as the company invests in projects with a positive NPV and a irr higher then the set hurdle rate - relative to market interest rates, project risk, and estimates . then this is consistent with its strategy of growth • Optimize the use of debt in the capital structure. o by focusing on its ability to service its debt. The lower they can bring their debt percentage their value will increase and is consistent with its strategy of growth • Repurchase undervalued shares o Buys backs will result in a higher PE ratio and investors currently holding stocks will see increase in their share value. Thou these are great signs by a company it could be just a different way to pay dividends. The greater loss is the opportunity to reinvest in other positive npv projects. ▪ Just to keep share holders happy may not be the best strategy for growth 2) How does Marriott use its estimate of its cost of capital? Does this make sense? Marriott uses a Debt capacity...
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...Marrioy 3. RESULTADOS a. Cálculos para Marriott Corporation . wacc = Ke (E / V) + Kd (1- t) (D / V) . Ke = Rf + Beta e * (premio por riesgo) . Beta e (βequity) En la Figura 5, tenemos el beta patrimonial de Marriott, con el cual calcularemos el beta de sus activos βactivos = βdeuda (D/ D+ E) + βequity (E/ D+ E) i. Beta de los activos cuando la deuda no es riesgosa. Si su deuda no es riesgosa, entonces βdeuda =0, quedando βactivos = βequity (E/ D+ E) βactivos = βequity (E/ D+ E)= 1,11*(1-41%)=0,65 Donde 41% es el market leverage (D/D+E) de Marriott Corporation de la Figura 3 ii. Beta patrimonial con deuda de Marriott, a partir de: βe = βa / (E/ V) 0,65/(1-0,41)=1,63 Donde 41% es el market leverage (D/D+E) de Marriott Corporation de la Figura 3 iii. Costo del capital (CAPM) Ke = Rf + Beta e * (premio por riesgo), en este caso 8,95% + 1,63 * 7,43%=21,06% Acá 8,95% es el retorno de los bonos del tesoro de USA a 30 años, lo que se considera como una proxy de la tasa libre de riesgo y 7,43% es el spread de los retornos del S&P500 y de los retornos de los bonos a largo plazo de USA, que nos muestra la Figura 5. Utilizaremos este premio por riesgo por tratarse de bonos a largo plazo y porque además considera una ventana de tiempo más amplia (1926-1987) iv. Costo de la deuda Kd = Rf + (premio por riesgo) = 8,95%+1,30%=10,25%, donde este último valor es el que nos entrega la Tabla A, de premio por riesgo de la deuda de Marriott por...
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...tahun 1926-1987 sebesar 12.01% Dari soal kami ketahui Beta Levered Marriott adalah 0.97. Tetapi ini adalah beta untuk tahun 1986-1987 dengan komposisi struktur kapital yang berbeda dengan yang diinginkan (debt sebesar 60%). Dari exhibit 1, kami ketahui debt untuk tahun 1987 adalah 41% dari keseluruhan kapital. Untuk mendapatkan beta levered dengan komposisi struktur kapital yang berbeda, kami menggunakan rumus Hamada. Bl=Bu+(1+(1-t)D/E) Bl=0,97; tax=0.34; D=2.498,8(juta dollar), E=$30*118,8million shares=3.564(juta dollar) Bu (beta unlevered)=0,66 Dari beta unlevered ini kami gunakan untuk perhitungan beta dengan komposisi struktur kapital debt 60%. Bl=Bu+(1+(1-t)D/E) D=0,6; E=0,4 maka didapatkan Beta Levered untuk Marriot adalah 1,32 Dengan demikian kami dapatkan CAPM, CAPM=Rf+b(Rm-Rf) sebesar 0,167 Rd, cost of debt didapatkan dengan menggunakan US government interest rate pada tahun 1988 untuk jangka maturity sebesar 30 tahun (kami asumsikan ini sesuai dengan going-concernnya Marriott) sebesar 8.95% dan tebarannya di atas Rate Premium pemerintah US sebesar 1.30%, maka kami dapatkan Cost Of Debt sebesar 8.95%+1.30%=10.25%. Dalam perhitungan ini kami juga mengasumsikan untuk tidak menggunakan perhitungan Floating Rate untuk debt. Tax yang digunakan adalah 34%, komposisi debt sebesar 60% dan...
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...Resumen del libro Espíritu de Servir El libro Espíritu de Servir fue escrito por el Empresario J.W. Marriot (J. Willard Marriot nombre completo.) Este libro tiene varias ediciones y a dado la vuelta al mundo ya que se trata de un libro que fue escrito por un empresario visionario de Estados Unidos dueño de una de las cadenas de hoteles mas importantes a nivel mundial, la cadena Marriot Corporation, que comprende no solo Los hoteles si no también Cadenas alimenticias, parques temáticos y línea de cruceros. El libro Espíritu de Servir habla de la vida del Sr. Marriot y como este fue creciendo dentro del ámbito de la hotelería, y como el fue criado por su padre. En el inicio del libro se habla de tres aspectos que son sumamente importantes para el buen desarrollo, éxito y perdurabilidad de cualquier empresa, que preste un servicio, estos son tres puntos que Marriot Corporation ha sabido inculcar en sus empleados y es gracias a eso la mayor parte de su éxito. Los tres aspectos que deberían de tener o con los cuales deberían de contar todas las empresas para tener éxito y perdurar por siempre son los siguientes: 1. Valores intemporales y un propósito perdurable: Esto se basa en que todas las empresas que quieran salir adelante y perdurar deben inculcar en sus empleados y practicar valores que trascienden y que aunque la empresa cambie su forma de trabajar o hacer las cosas los valores siempre deberán de ser los mismos. 2. Gran deseo por superarse: esto a lo que...
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...Alexandria Cooker Group Project 2 1. Manage rather than own hotel asset: holding the whole hotel assets is more risky than just managing the hotel. Normally management fees are 3% of the revenue plus 20% of the profits before depreciation. After the company was developed, Marriot sold the hotel assets to limited partners but retained management. By controlling their costs and resources its easier for them to achieve their goals because they can decrease costs and employees’ salary will be better as well as customer service quality. Invest in projects that increase shareholder value: Marriott is focused on project, which will give a potential return. To invest in projects that increase shareholder value is good for growth. Marriott is able to analyze potential investments. Optimize the use of debt in the capital structure: They invest money in long-term assets so they have to optimize their debt use. Decreasing the debt percentage the value of Marriott will increase. Repurchase undervalued shares: The strategy to repurchase their stocks whenever its market price fell. This gives them the ability to reinvest money and create more potential for future profits. Its possible that the company won’t notice other projects with positive NPV. Not consistent with its growth objective. 2. They use WACC to determine the opportunity cost of capital. Its used to make decisions about whether a project should be realized or not. It does make sense to use estimates of the cost of...
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...FINANCIAL ANALYSIS Of MARRIOT INTERNATIONAL INC. Jannine Mae S. Cortes BBF 3-9S Consolidated Statements of Income (USD $) | In millions, except per share date | unless otherwise specified | | 31-Dec-14 | 31-Dec-13 | 28-Dec-12 | REVENUES | | | | Base Management fees | 4.87% | 4.8576% | 4.9179% | Franchise fees | 5.40% | 5.2096% | 0.5671% | Incentive management fees | 2.18% | 2.0025% | 1.9638% | Owned, Leased and other Revenue | 7.41% | 7.4312% | 8.3714% | Cost reimbursements | 80.13% | 80.4991% | 79.6089% | Revenues | 100% | 100.00% | 100.00% | OPERATING COSTS AND EXPENSES | | | | Owned, Leased and other-direct | 5.62% | 5.7024% | 6.6447% | Reimbursement Cost | 80.13% | 80.4991% | 79.6089% | Depreciation, amortization, and other | 1.07% | 0.9934% | 0.1016% | General, administrative, and other | 4.78% | 5.0767% | 4.9264% | Cost and Expenses, Total | 91.60% | 92.2716% | 92.0433% | OPERATING INCOME | 8.40% | 7.7284% | 7.9567% | Gains and other income | 0.0580% | 0.0860% | 0.3555% | Interest expense | -0.8336% | -0.9387% | -1.1596% | Interest Income | 0.2175% | 0.1799% | 0.1439% | Equity in earnings (losses) | 0.0435% | -0.0391% | -0.1100% | INCOME BEFORE INCOME TAXES | 7.8863% | 7.0166% | 7.1864% | Provision for income taxes | -2.43% | -2.1198% | -2.3531% | NET INCOME | 5.46% | 4.8967% | 4.8332% | EARNINGS PER SHARE- Basic | | | | Earnings per share (in USD per share) | $2.60 | $2.05 | $1.77 | EARNINGS PER...
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...Questions pour discussion du cas Marriott Corporation Veuillez répondre aux questions suivantes : 1. Quels sont les véritables objectifs du Projet Chariot ? 2. Le Projet Chariot est-il compatible avec les énoncés de principes de l’entreprise, présentés dans ses rapports annuels ? 3. Quels sont les avantages et les inconvénients du projet, du point de vue des détenteurs d’obligations de Marriott ? 4. Le projet aura-t-il un impact sur la valeur marchande des obligations ? Si oui, à combien estimez-vous cet impact ? Sinon, pourquoi pas ? Note : la dette à long terme de Marriott (± 3 B $) est présentée à l’annexe 2, page 10. Note : S&P attribue la cote D aux obligations d’une entreprise en défaut et la cote CCC à celles d’une entreprise en difficulté financière dont le défaut est probable (cf. page 17). 5. Quels sont les avantages et les inconvénients du projet, du point de vue des détenteurs d’actions ordinaires de Marriott ? 6. Le projet aura-t-il un impact sur la valeur marchande des actions ? Si oui, à combien estimez-vous cet impact ? Sinon, pourquoi pas ? 7. Recommandez-vous l’adoption de ce projet ? Si oui, pourquoi ? Sinon, le recommanderiez-vous après modifications (et lesquelles…) ? À remettre au début de la séance # 3 (18 janvier 2016) 3 pages maximum (excluant les annexes de calcul, s’il y a lieu) NOTES La valeur marchande d’une catégorie de titres est égale au produit du prix unitaire...
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...| Marriott Corporation | Case Study – Write Up | Hitesh Gupta & Swapnil Deshpande 2-5-2015 | Q1 what is overall WACC for Marriott Corporation? Ans :- For calculating WACC we need cost of equity for the firm(ke) ,cost of debt(kd) capital structure of the firm and tax rate (t). To calculate cost of debt we chose the long term interest rate on U.S. government bond and added debt rate premium (From Table A debt premium = 1.3%) for Marriott Corporation to it. We chose long term US govt bond rate (Rf = 8.95%) majorly because of their lodging business which contributes more than 50% of the profit and has assets of a very long useful lives The target capital structure is provided in Table A of the case study which is 60% debt and 40% equity. We will use the same while calculating WACC. From exhibit 1 of case study the Tax rate in the year 1987 for unlevered beta = 44% = (Income tax / Income before income tax)*100% To Calculate cost of equity we have followed the below process (See Appendix for calculations): 1) Calculated unlevered beta (βu) using the given debt to equity ratio and given equity beta from Exhibit 3 of case study βu= βl(1+1-t*DE) 2) Levered the βu with the targeted capital structure and tax rate = 35% βl = βu*(1+1-t*DE) 3) To determine the risk premium (Rm – Rf) we have used 1926 -87 Spread between S&P 500 composite return and long term U.S. govt bond return (Exhibit 5 of the case study) to have a reasonable measure of long...
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