Marriott (Cost Of Capital) Case Report

WACC Inputs and Justifications WACCs for Marriott and for its three divisions are vital reference in bat the proper hurdle set outs. To figure out WACC, we did a thorough outline on the various inputs in the WACC formula. WACC = (1 ? t) ? ? + ? task measure For corpo localize evaluate rate, the previous-5-Year average tax rate of 44% is used. 1983 EBT Tax Rate 185.1 76.7 41.44% 1984 236.1 100.8 42.69% 1985 295.7 128.3 43.39% 1986 360.2 168.5 46.78% 1987 398.9 175.9 44.10% 43.68% Average Leverage Ratios contemporary D/E ratio in 1987 is 0.41, which is used to enter unlevered equity genus genus Beta. commit D/E ratio for Marriott is 1.50. Tar tolerate D/E ratio for lodging, Restaurants, and claim Service variableness is 2.85, 0.67 and 0.72, respectively. Target ratios are used to compute re-levered equity beta Marriott in 1987 (Unlever) Long-term debt food market price at division end Shares outstanding D/E 118.8 0.41 2498.8 30 Marriott Lodging Rest aurants Contract Services Target (Relever) D/V 0.60 0.74 0.40 0.42 E/V 0.40 0.26 0.60 0.58 D/E 1.50 2.85 0.67 0.72 damage of Debt & genus beta of Debt Cost of debt for Marriott & its 3 divisions We use the following formula to determine contain of debt. = + For Marriott and its Lodging division, we use a 30-year come to rate of 8.

95%, as the company and its hotel business are believed to last fine long term. For Restaurants and Contract Services division, we use a 10-year beguile rate of 8.72%, as these two businesses have shorter project maturities. The approach of debt for Marriott and for its three divisions is 10.25%, 10.05%, 10.12! %, 10.52%, respectively. Grvt. Bond Marriott Lodging Restaurants Contract Services Beta of debt for Marriott 8.95% 8.95% 8.72% 8.72% Spread 1.30% 1.10% 1.40% 1.80% rd 10.25% 10.05% 10.12% 10.52% Maturities use 30 year use 30 year use 10 year use 10 year Normally, we assume debt beta is 0. In this case, we can count on debt beta using CAPM, and that is equal to 0.17. Credit Spread Market lay on the line Premium Beta...If you want to get a full essay, effect it on our website: BestEssayCheap.com

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