Essay about Cost of Capital for Marriott

Mortensen’s cost of capital estimates are used for a variety of purposes at both the divisional and corporate levels. Examples include internal analyses such as financial accounting, performance assessment and capital budgeting, while others are used for strategic planning purposes such as merger and acquisition, as well as stock repurchase decisions (Luehrman and Heilprin, 2009, pg.1). When used at the divisional rather than corporate level, special consideration should be given to the fact that Midland’s divisions are not publicly traded entities, and therefore do not have individual Beta

The Marriott Corporation (MC), had seen a long, successful reign in the hospitality industry until the late 1980s. An economic downturn and the 1990 real estate crash resulted in MC owning newly developed hotel properties with no potential buyers in sight and a mound of debt. During the late 1980s, MC had promised in their annual reports to sell off some of their hotel properties and reduce their burden of debt. However, the company made little progress toward fulfilling that promise. During 1992, MC realized that financial results were only slightly up from the previous year and their ability to raise funds in the capital market was severely limited. MC was left with little choice, as they had to

We use Capital Asset Pricing Model (CAPM) approach to calculate the cost of equity. The formula of CAPM is re = rf + β × (E[RMkt] – rf).

This proposal accounts for the new debt and equity mix of Star Appliances by estimating the company’s cost of equity. The methods used include the dividend discount model, the earnings/price model, and the CAPM model. After analyzing all three possibilities, it is apparent that the CAPM model provides the most accurate estimate of Star Company’s cost of capital because it accounts for the beta. Using the CAPM model, the new Star Company cost of equity is calculated as 9.4% and the WACC is determined to be 9.14% at the 9.5% debt rate.

A correct response requires that you find an appropriate industry beta and measure for levered/unlevered betas and requires that you define cost of equity capital and free cash flow (FCF) – you may need a formula for FCF.

The cost of equity was found using CAPM, with the given market risk premium of 5%, a beta of .88, and risk-free rate of 4.03%. The beta was found by running a regression of Southwest’s percent change in stock price versus the S&P 500’s percent change in stock price for two years (June 28, 2000 to June 28, 2002). The risk-free rate was the return on a ten-year treasury note issued on June 28, 2002, according to the U.S. Treasury’s website. The tax rate of 39% was used to account for tax savings from leverage. In order to calculate the firm’s leverage, the market value of equity was found from the price per share on July 24, 2002 (Yahoo Finance) and the shares outstanding on the balance sheet of the July 10-Q report, as shown in Exhibit X. The debt value was approximated at the book value since data could not be found regarding its market value. This analysis resulted in a debt weight of 11.74% and equity weight of 88.26%. The final approximation for the weighted average cost of capital was 8.64%.

The mixture of debt-equity mix is important so as to maximize the stock price of the Costco. However, it will be significant to consider the Weighted Average Cost of Capital (WACC) as well so that it can evaluate the company targeted capital structure. Cost of capital (OC) may be used by the companies as for long term decision making, so industries that faced to take the important of Cost of capital seriously may not make the right choice by choosing the right project(Gitman’s, ).

To find the cost of equity we used the formula rs = rRF + beta*MRP in which rRF2002 = 5.86% and the Market Risk Premium (MRP) = 5% as calculated by the Southwest Airlines finance department. We then calculated the beta for Southwest Airlines based on a regression analysis of five-year monthly returns on Southwest stock from January 1997 to January 2002, compared with the S&P 500 returns over the same period. This regression analysis indicated that Beta = .2219. Therefore,

7. What is the cost of capital for Marriott’s contract services division? How can you estimate its equity costs without

At first, WACC and CAPM was attempted to be used as a source of cost of capital. However, for WACC, there is no available proportion of debt and cost of debt for MW. For CAPM, no available data seems to support the acceptable

• What is the cost of capital for Marriott’s as a whole at the prevailing capital structure vs. at the target capital structure.

In this paper, we present a detailed financial analysis of the Regency Blue Ribbon Restaurant. In the analysis, we include a detailed calculation of the 2007, 2008, 2009 and 2010 profitability, financial and business activity ratios. The profitability ratio calculation is limited to the calculation of Gross Profit, Net Profit and Return on Owner's Equity (ROI). The Financial stability ratio analysis involves the calculation of the Working capital/current and Debt while the business activity ratio analysis involves the calculation of the accounts receivables turnover. While performing the above calculations, the credit sales are pegged at 10% of the total sales while the credit terms are paged at net 30 days. After the calculation and analysis, we perform a further analysis aimed at comparing the results with industry averages. The actions to be taken in order to achieve future results that are close to or even better than the industry averages are then presented. We then discuss the future concerns that are identified in the given forecast as well as the necessary actions for addressing them.

Cost of Equity is the return that stockholders require for a company. A company’s cost of equity represents the compensation that the market demands in exchange for owning the assets and bearing the risk of ownership. Based on capital markets the cost of equity varies in direct relation to the assumed risk in that specific market. The distinctive of the firm is the sensitivity to market risk (β) which depends on everything from management to its business and capital structure. Therefore past performances and present conditions have a direct effect on the overall value. Applying calculations at a divisional level allows specified markets to be analysis based on present market conditions for that service or product. The formula used to calculate Cost of Equity is:

* allocation of profit between divisions, the capitalization of expenses, and the meaning of 'working capital ' in a specific setting

Marriott International, Inc. is one of the leading companies around the world with more than 3,900 properties, associates, and 18 brands (Marriott International, 2014). The aim of Marriott International is to offer the best service to its customers that will lead to a long term loyalty to the brand. It is all about offering unique experiences that differentiate them with their competitors (Jin, 2011). However, in order to offer this experience, the hotel needs to look at its operational activities. This paper looks at the strength, weaknesses, opportunities, and threats of this company and looks at challenges it faces in every operational activity. The paper the looks at areas for opportunities to devise a new innovative customer-focus service, how and where to search to devise and develop a new customer-focused service idea, and the new services development (NSD) process. The paper then looks at the potential risks and costs that will be determine by the successful development of new or modified services and the intellectual property issues. Finally, the paper makes a conclusion based on the discussions from the research conducted.