Study Marriott Corporation | | | | | | 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
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Questions Case #5 – Marriott Corporation: The Cost of Capital 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? 2. How does Marriott use its estimate of its cost of capital? Does this make sense? 3. What is the weighted average cost of capital for Marriott Corporation? a. What risk free rate and risk premium did you use to calculate the cost of equity? b. How did you measure Marriott’s cost of debt? 4. If Marriott used a single corporate
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determine the strengths of each member. Suggested Questions Identify the companies with an industry. Marriott Corporation: The Cost of Capital Substantive Issues This case provides you with the opportunity to explore how a company uses the capital asset pricing model (CAPM) to compute the cost of capital for the company and for each of its divisions. The weighted average cost of capital (WACC) formula and the mechanics
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Assignment Source Document: HBS case- Marriott 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
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MARRIOTT Case Analysis 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? Manage rather than own hotel assets – Although this strategy has a risk of contract expiration it makes easier to expand. Invest in projects that increase shareholder value – This component definitely stimulates growth, although may force management to take more risk. Optimize the use of debt in the capital structure – The concept of optimal capital structure stands for the
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with its growth objective? Explain. • Manage Rather than own hotel assets – Marriott sold it’s assets to partners, which should increase profitability by way of return on assets. Although there is a risk of contract expiration, but investing in higher risk projects should result in high returns. • Invest in projects that increase shareholder Value – The discounted cash flows method allows for Marriott to invest in projects that are profitable, although I would argue that company faces
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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
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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
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determine an appropriate Cost of Capital for Marriott Corporation. To do so, we have based our assesment on the information and assumptions contained in the text of Dan Cohrs “Marriott Corporation: The Cost of Capital”. As stated in the lecture, Marriot Corporation is composed of three different divisions: lodging, restaurants and contract services. So, during this workshop we calculated a different cost of capital for each one of the three divisions. To determine the Cost of Capital for each division
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Marriott's corporation: the cost of capital What is the weighted average cost of capital for Marriott Corporation? Are the four components of Marriott's financial strategy consistent with its growth objective? Marriott Corporation is an international company who's the growth over the year has been more than satisfactory. In 1987, Marriott's sales grew up by 24% and its return on equity stood at 22%. Moreover the sales and earnings pr share has doubled over the previous year. The company
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