Marriott (Cost Of Capital) Case Report

WACC Inputs and Justifications WACCs for Marriott and for its three divisions are vital reference in toy 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) ? ? + ? taxation measure For corpo station 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 elaborate unlevered equity genus beta. intent D/E ratio for Marriott is 1.50. Tar pull D/E ratio for lodging, Restaurants, and claim Service partition 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 grocery store price at socio-economic class end Shares outstanding D/E 118.8 0.41 2498.8 30 Marriot t 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 toll 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 saki rate of 8.72%, as these two businesses have shorter project maturities. The address 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 portend 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: OrderCustomPaper.com

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