Case Analysis: Marriott Corporation

3037 Words Oct 26th, 2008 13 Pages
Financial Decision Making
Final Project

Case analysis: Marriott Corporation

Introduction and background The Marriott Corporation, an American firm, was founded in 1927 by J.Willard Marriot.The company began as a small beer stand and soon began to sell food and provided lodging that expanded rapidly. With the help of his wife Alice, the family owned business had 45 restaurants in nine states by 1940 and grew into one of the leading service companies. The Company has three major lines of business: lodging, contract service and restaurants.

The four components of its financial strategy are steady with this growth objective. Its growth objective is to remain a leading growth company and developing appropriate investment
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After find out the results the next step will allow to compute for the taxes, and establish the WACC for the whole company. The discount rate represented by the weighted average cost of capital (WACC) has an important factor in deciding the net present value (NPV) of a project. Calculating the NPV is an important task since it allows the investors to make proper investment decisions. Given that the NPV of a project is positive, then the project is profitable and should be taken, but if the project has a negative NPV, then the project should be rejected. In the evaluations of a project the investors are making an investment decision with the objective of maximizing shareholders wealth. The next step is determined the Risk-free Rates, Risk Premiums and Betas for lodging and restaurant divisions in order to calculate the Cost of Equity for both divisions. After finding out the cost of debt and the debt for lodging and restaurant divisions, the cost of equity will follow.
The WACC for the Marriot Corporation is calculated using the formula based on following data:
This approach uses the primary assumption that the debt-equity ratio for the corporation remains constant. In Marriott’s case the corporation’s target leverage ratio based on interest coverage target is set at 60% as given from Table A.
The main goal is to calculate the Weighted Average Cost of Capital

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