| 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
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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 the information
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RE: Marriott Corporation Consultant Summary Dear Mr. Cohrs, We are pleased to offer our consulting opinion in regards to the cost of capital, debt, and equity. We have reviewed and analyzed the industry and market data provided as well as heavily researched your industry to understand trends, risks, growth potential, etc. The attached report is a detailed summary of problems and decisions faced based on the method of calculating the cost of capital, cost of equity, and the cost of debt
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preferred employer, preferred provider and the most profitable company, which means Marriott intend to outperform the average market. Considering the above information, Marriott’s financial strategies are consistent with its growth objective. To be more specific, firstly, Marriott actively manages hotel assets using syndication method with a fully integrated development process rather than passively own it. For example, Marriott developed more than $1 billion worth of hotel properties, making it one of
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Marriott Corporation - The Cost of Capital (Abridged) The Marriott Corporation is comprised of three major lines of businesses, lodging, restaurants and contract services. In order to decide which projects to take on in these divisions, each year a hurdle rate must be set which they use to discount a project’s cash flow to see if it will be profitable enough. We will conduct an analysis to calculate the hurdle rate for Marriott as a whole and for each division. We will use WACC as the hurdle rate
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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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projects that increase shareholder value, to optimize the use of debt in the capital structure, and to repurchase undervalued shares when necessary. Marriott’s growth objective is to become the preferred employer and provider in lodging, contract services (such as catering), and restaurants, and to be the most profitable company in their industry. By choosing to manage hotel properties instead of owning them Marriott lowers their accounting assets on the books, therefore increasing their return
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1. The case provides a formula for the weighted average cost of capital (WACC) that differs slightly from the formula given in class. For the purpose of your analysis, use the version of the formula given in class: We will discuss the version of the WACC given in the case later in the course. 2. In answering the questions below, pay careful attention to the distinction between Marriott’s current capital structure and its target capital structure. Please answer the following questions in
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Marriott Case Study 1)What is the weighted average cost of capital for Marriott? The weighted average cost of capital for Marriott is 11.64%. .4(cost of equity) + .6(cost of debt)(1- tax) Tax = Income tax/Income before tax = 175.9/398.9 = 44% Cost of debt = .5(.0895) + .4(.0872) + .25(.069) + .5(.011) + .4(.014) +.25(.018) = 11.25% B = 1.1 when d/e = .41 target d/e is .6 so.. B(a) = B(e) / (1 + (1-tax) D/E) = 1.11 / (1+.56(2499/3596)) = .80 B = .8 * (1+.56(5394/3596)) = 1.47
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Marriot case Analysis 1, financial strategy According to the case, we noticed that Marriott Corporation intends to remain a premier growth company, to be the preferred employer, the preferred provider and the most profitable company. And in order to achieve these goals, it incorporated four main elements into its financial strategy. In our opinion, these elements are consistent with the financial strategy. First, Marriot sold its own hotel assets to limited partners but retain the operating
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