Marriott Cost of Capital

Marriott personify of capital Objective: 1) Calculate the divisional and the company cost of capital and explain the calculation. 2) Evaluate Marriotts use of company cost-of-capital ordinate for the individual divisions. toll of Capital for Lodging Division place be expressed as CC = We*Ce + Wd*Cd. For the weights of debt and fairness (We and Wd), the 1988 tar cut-schedule rates of debt-to-assets and debt-to-equity were employ as the only measures available in the case. Cost of Equity (Ce) was calculated based on the CAPM formula. 30-year T-bond was utilise as a long-term risk-free security to suck up the risk-free rate, since Marriott used the cost of long-term debt for its lodging cost-of-capital calculations. The market premium 8.47 was the arithmetic-average spread between the S&P ergocalciferol returns and the short-term US T-bills between 1926-1987. This market premium is pursuant(predicate) with the current academic suggestions and it was used in all calculations of this exercise. The leveraged genus Beta (Bl) of the lodging division, needed for CAPM, was derived from the following equation: Bl=Bu(1+D/E), where Bu is the unleveraged Beta. Bu was in turn derived from the weighted-average of the Bus of the lodging businesses given in the case.

The weighted-average method earlier than a simple arithmetic-average method was used to allow a more accurate Bu of the overall industry. Cost of Debt (Cd) is defined as (risk-free rate)+the premium (Table A of the case). Once again, the 30 T-bond rate was used for the risk-free rate. Cost of Capital for Lodging is 13.24%. The WA Bu of immediatelys lodging industry is slightly higher than that in 1987, indicating a slight increase in the business risk associated with the industry. Cost of Capital for Restaurant Division was calculated in the similar manner. The 1-year T-bill was used as a usual shorter-term security to obtain the risk-free rate. The unleveraged Beta, used to obtain the leveraged Beta for the CAPM, was... If you want to get a full essay, order it on our website: Orderessay

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