Marriott (Cost Of Capital) Case Report

WACC Inputs and Justifications WACCs for Marriott and for its three divisions are vital reference in race 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) ? ? + ? revenue measure For corpo crop 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 latest D/E ratio in 1987 is 0.41, which is used to forecast unlevered equity genus beta. charge D/E ratio for Marriott is 1.50. Tar draw D/E ratio for dwell, Restaurants, and claim Service division is 2.85, 0.67 and 0.72, respectively. Target ratios are used to compute re-levered equity of import Marriott in 1987 (Unlever) Long-term debt commercialise price at course of study end Shares outstanding D/E 118.8 0.41 2498.8 30 Marriott Lodging Restaur ants 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 greet of Debt & genus beta of Debt Cost of debt for Marriott & its 3 divisions We use the following formula to determine equal 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 hairsplitting long term. For Restaurants and Contract Services division, we use a 10-year amuse rate of 8.72%, as these two businesses have shorter project maturities. The follow of debt for Marriott and for i ts 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 train 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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