Darden Case - Marriott Corporation Strategy

605 Words Apr 15th, 2011 3 Pages
In January 1980, the management of the Marriott Corporation found itself in an interesting dilemma: not only did the corporation have considerable excess debt capacity, but projections of future operations and cash flows indicated that this capacity was on the rise. For Marriott, excess debt capacity was viewed as comparable to unused plant capacity because the existing equity base could support additional productive assets. Management was therefore faced with two problems. First, it needed to determine the amount of funds that would be available if Marriott's full debt capacity were utilized. Second, management needed to decide whether to invest excess funds in new or existing businesses, or to return them to the companies shareholders …show more content…
Suggested ratios to shoot for are found by putting them into the context of various industry figures. By using other firms as a yardstick, you can then assess where your values need to fall to be competitive with other firms similar to your own. Knowing now how much debt it would like to carry Marriott can now lever up to meet those levels. This brings us to their second issue, what to do with these new funds. Management has identified two general categories of investments: (1) promoting growth by expanding existing operations or diversifying into new businesses; or (2) returning capital to the shareholders by increasing the company's dividends or by buying back some of the outstanding stock. To valuate the possible projects associated with category (1), I would guess that simple NPV or IRR calculations would suffice in determining with projects represented the highest value to the firm. With regards to the possibilities of the second category, determining their overall effects on the corporations WACC would be a useful tool in determining which action would be best to take. Overall, I would personally recommend that they just maintain their excess debt capacity, even though they see it as a waste. With Marriott being a high-growth company, having resources readily available will make sure that whenever lucrative investments present themselves they are in a position to capitalize on them. I believe that letting opportunities present themselves

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