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 hurdle
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Marriott Corporation: The Cost of Capital Executive Summary J. Willard Marriott started Marriott Corporation in 1927 with a root beer stand, expanding it into a leading lodging and food service company with sales of over $6 billion by 1987. At the time, Marriott had three main lines of business, lodging, contract services and restaurants, with lodging generating about 51% of company’s profits. The four key elements of Marriott’s financial strategy were managing hotel assets rather than owning
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for Marriott Corporation ...................................................... 2 (a) The risk free rate and risk premium to calculate the cost of equity. .......................................... 2 (b) Measurement of Marriott’s cost of debt .................................................................................... 2 (c) Preference and explanaton between arithmetic & geometric mean to measure rates of return . 2 3. Which type of investment you value using Marriott’s WACC. What would
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Case Study: Marriott Corporation The Cost of Capital Teresa Cortez Keith Gemmell Brandon Papsidero Robin Reschke October 28, 2013 Table of Contents 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? ..................................
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| |Marriott Corporation: | |Cost of Capital | Concepts Covered Cost of Equity: Cost of Equity is the minimum rate of return a firm must offer to the shareholders
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• 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 quite a bit of risk based on their assumptions
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#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 hurdle rate
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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
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Portland State University School of Business Administration FIN 565: Cases in Corporate Finance Case Descriptions and Suggestions Fall 2010 As you review the case descriptions and read the cases, develop a plan for your analysis. The case report and presentation should include, but not be limited to, the suggested questions I have provided. Do not submit or present the case a simply a numbered series of answers to the questions. The case analysis must be a narrative report that includes
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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
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