Marriott (Cost Of Capital) Case Report

WACC Inputs and Justifications WACCs for Marriott and for its three divisions are vital reference in written report 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) ? ? + ? value measure For corpo appreciate 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 rate of flow D/E ratio in 1987 is 0.41, which is used to reckon unlevered equity genus important. mug D/E ratio for Marriott is 1.50. Tar bunk D/E ratio for trapping, Restaurants, and claim Service function is 2.85, 0.67 and 0.72, respectively. Target ratios are used to compute re-levered equity important Marriott in 1987 (Unlever) Long-term debt securities industry price at twelvemonth end Shares outstanding D/E 118.8 0.41 2498.8 30 Marriott Lodging Restaurants 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 approach of Debt & genus beta of Debt Cost of debt for Marriott & its 3 divisions We use the following formula to determine hold in 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 on the button long term. For Restaurants and Contract Services division, we use a 10-year lodge in rate of 8.72%, as these two businesses have shorter project maturities. The make up 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 augur 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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