Conclusion after discounting cash flows provided in exhibit 2 with the calculated wacc of 9. Click to edit master subtitle style october 14, 2008. Presents recommendations for hurdle rates of marriott s divisions to select by discounting appropriate cash flows by the appropriate hurdle rate for each division. Marriott corp cost of capital case solution, marriott corp cost of capital case analysis, marriott corp cost of capital case study solution, marriott corporation the cost of capital case study analysis 1. Energy star offers making these linkages is an essential part of developing a sustained approach to continuous improvements in guides and manuals energy and financial performance in lodging properties. The cost of capital abridged case solution,marriot corporation. Marriott corp the cost of capital abridged by richard s.
You must have a good understanding of the weighted cost of capital to do. John bernagene, carl leacock, anye wanki, alex weber date. This strategy means that marriott are confident in its future performance. Marriott used or considered to use the estimate for the cost of capital in two ways. Finance 351, corporate finance, marriott corporation, hint sheet. Finance 251f351, corporate finance, marriott corporation. How does the cost of debt for marriott should be calculated. Marriott international generates higher returns on investment than it costs the company to raise the capital needed for that investment.
Remote work advice from the largest allremote company. The use of weighted average cost of capital wacc formula and the mechanics of applying it are stressed. Financial reporting quality relates to the accuracy with which marriott international inc. Leveredunlevered beta of marriott international inc. Simon gervais fall 2011 term 2 in this case, you will use the capm model to compute the cost of capital for a whole company and for each of its divisions. Marriott cost of capital due on january 25, 2017 at 9. Finance division evaluates investments using weighted average cost of capital wacc as a hurdle rate to discount the cash flows for an investment opportunity. Mar usa beta is a statistical measure that compares the volatility of a stock against the volatility of the broader market, which is typically measured by a reference market index. Capital structure decisions marriott corporation and gary. It also can appease investors and avoid pressure to increase dividend, thereby it can use its retained earnings to invest more in profitable projects. The analysis shows that each division does have different cost of capital.
Mar 08, 2007 the analysis shows that each division does have different cost of capital. Jan 09, 2018 im lily jacob mba student for harvard university provide you case study a grade paper marriott corporation. How does marriott use its estimate of its cost of capital. Im lily jacob mba student for harvard university provide you case study a grade paper marriott corporation. The two inputs are thus the debt ratio in total capital and the applicable debt servicing cost. The cost of debt for all the divisions of mc is calculated using the below two inputs. A diversification, the capital asset pricing model, and the cost of equity capital, spanish version the wm. Cost of capital for marriott as a whole to find the cost of capital, we use the following information. How can you estimate its equity costs without publicly traded comparable. What is the cost of capital for marriotts contract services division. Marriott corporation the cost of capital team number. Thus, return rate that is based on the longest period should be. Next is the crucial element of the cost of capital and the key objective of minimizing it.
The wacc is commonly referred to as the firms cost of capital. Jeremy masem fin 685 102112 cost of capital paper the relationship between the method and assumptions made with respect to placing a value on a financial instrument and determining the capital cost for each of these instruments is intertwined. Marriott corporation relied on measuring the opportunity cost of capital for investments by utilizing the concept of weighted average cost of capital wacc. Harvard business case studies solutions assignment help.
Marriott measured the opportunity cost of capital for investments of similar risk using the weighted average cost of capital wacc as. Marriott corporation the cost of capital case study sample. Marriott corporation cost of capital case analysis free download as pdf file. The cost of capital abridged case study solution, the calculation of wacc requires calculating first of all the cost of equity and cost of debt. Aggregate accruals deriving measures of the accrual component of marriott. Marriott corp cost of capital case solution and analysis. As of today 20200416, marriott internationals weighted average cost of capital is 8. Willard marriott s root beer stand grew into one of the leading lodging and food service companies lines of business. Cost of capital s cost of capital the cost of capital is described by rosenbaum and pearl 2009 as the cost of a firms funds, both equity and debt.
To find out a suitable hurdle rate, to be used as a discount rate for cash inflows, to evaluate various. Then, the cost of capital for the lodging and restaurant divisions of marriott is 6. Cost of capital for marriott essay cost of capital for marriott mentioned tables not included objective. Jesse galindo, sulabh gupta, maggie jones, wale olukanmi wacc for marriotts contract division 23. Marriott case questions final draft free download as word doc.
Scribd is the worlds largest social reading and publishing site. The case states marriott used the cost of longterm debt for its lodging cost of capital calculations since lodging assets has long useful lives. Marriott corp the cost of capital harvard business publishing. Jesse galindo, sulabh gupta, maggie jones, wale olukanmi marriott corporation. Marriott international inc leveredunlevered beta mar. The cost of capital abstract presents recommendations for hurdle rates of marriott s divisions to select by discounting appropriate cash flows by the appropriate hurdle rate for each division. A firms wacc increases as the beta and rate of return on equity increase because an increase in wacc denotes a decrease in valuation and an. Minimizing the cost of capital in hotel investments. Calculate the aftertax cost of debt, preferred stock, and common equity. In april 1988, vp of project finance, dan cohrs suggested that the divisional hurdle rates at the company would have a key impact on their future financial and operating strategies. What is the weighted average cost of capital wacc for marriott corporation. Introduction 4 hotel cost estimating guide 2011 two years ago, seeing the need for a way to quickly find an approximate estimate of quality and uptodate costs for. Marriott corp the cost of capital abridged harvard business. The case presents a company, named marriott corporation mc, possessing.
Evaluate firms capital structure, and determine the relative importance weight of each source of financing. The cost of capital case study sample fee free download word file and pdf. Marriott corporation corporate finance presentation. In other words, the cost of capital is the cost of utilizing owners or creditors funds. Finance 351, corporate finance, marriott corporation, hint. Discover marriott bonvoy our new, combined loyalty program that rewards you more than ever. Thus, return rate that is based on the longest period should be the best representative of the rate to be used. What is the cost of capital for marriotts contract services 15 division. Marriott corp the cost of capital abridged case analysis, marriott corp the cost of capital abridged case study solution, marriott corp the cost of capital abridged xls file, marriott corp the cost of capital abridged excel file, subjects covered capital costs by richard s. In this book chapter, we introduce the readers to typical sources of hotel financing using a hypothetical casestudy.
Marriott corporation the cost of capital cost of capital. Marriott corp cost of capital case solution and analysis, hbr. Marriott corporation cost of capital financial markets. Presents recommendations for hurdle rates of marriott s divisions to select by discounting appropriate cash flows by the. A companys cost of capital is the cost of its longterm sources of funds. Marriott corporation cost of capital case analysis cost. In order to calculate the cost of equity for each of the thr. Below are some questions you should think about as you read the marriott case that will help you understand the concepts the case is trying to cover. Marriott corporation the cost of capital case 1 fin team 4. The cost of capital abridged case analysis, marriot corporation. The cost of capital abstract presents recommendations for hurdle rates of marriott s divisions to select by discounting appropriate cash flows by. Marriott corporation the cost of capital case solution, marriott corporation the cost of capital case analysis, marriott corporation the cost of capital case study solution, based on the waccs stated for marriott and its various departments its can be seen that the wacc obtained for each of the division significantly varies fr.
To properly use wacc as a measure for the overall cost of capital, you need to consider the following issues. Simon gervais spring 2010 term 1 in this case, you will use the capm model to compute the cost of capital for a whole company and for each of its divisions. Presents recommendations for hurdle rates of marriotts divisions to select by discounting appropriate cash flows by. The cost of capital october 14, 2008 nroop bhavsar prerak shah 2. In front of dan chores is the issue of recommending three hurdle rates for each of marriott corporations three divisions, which have significant effect on the firms financial and operating strategies as well as its incentive compensation. First is a discussion of marriott s capital structure and the importance of debt and equity. There are three measures of dv for marriott available in this case. Generally speaking, a companys assets are financed by debt and equity. And the cost of each source reflects the risk of the assets the company invests in. Aug 02, 2016 marriott corporation relied on measuring the opportunity cost of capital for investments by utilizing the concept of weighted average cost of capital wacc. Marriott corp the cost of capital case solution and. Marriott use the weightedaverage cost of capital wacc method to measure the opportunity cost for investments.
The weighted average cost of capital wacc is the rate that a company is expected to pay on average to all its security holders to finance its assets. Primarily marriott is about using the capm to evaluate investment opportunities. Chapter 14 the cost of capital texas tech university. Gives students the opportunity to explore how a company uses the capital asset pricing model capm to compute the cost of capital for each of its divisions. The cost of capital is the companys cost of using funds provided by creditors and shareholders.
To properly use wacc as a measure for the overall cost of capital, you need to. Jan 18, 2010 the analysis shows that each division does have different cost of capital. The cost of capital relies on the mode of financing that has been. It also provides significant scale and operating leverage such that modest growth in revpar. Presents recommendations for hurdle rates of marriotts divisions to select by discounting appropriate cash flows by the appropriate hurdle rate for each division. The cost of capital for marriott s as a whole is 8. Marriot corporation measures the opportunity cost of the cost of capital for the investments using the weighted average cost of capital for similar investments that have the same risk. Explore the many ways you can earn and redeem points with hotels and experiences worldwide. How can you estimate its equity costs without publicly traded comparable companies. Marriott corp the cost of capital 10 steps case study. The cost of capital case study sample fee free download word file and pdf click this. Since marriott is a huge firm that has a long history, we choose to use the 30year maturity u.
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