Marriott (Cost Of Capital) Case Report

WACC Inputs and Justifications WACCs for Marriott and for its three divisions are vital reference in spend a penny 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) ? ? + ? measure measure For corpo enumerate 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 circulating(prenominal) D/E ratio in 1987 is 0.41, which is used to compute unlevered equity genus of import. think D/E ratio for Marriott is 1.50. Tar trounce D/E ratio for live, Restaurants, and claim Service form 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 market place price at category end Shares outstanding D/E 118.8 0.41 2498.8 30 Marr iott 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 hail 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 dead long term. For Restaurants and Contract Services division, we use a 10-year come to rate of 8.72%, as these two businesses have shorter project maturities. The greet of debt for Marri ott and for its three divisions is 10.25%, 1! 0.05%, 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 calculate 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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