Hbs Case “Marriott Corporation: the Cost of Capital”

To relever the βe, we use the formula, βe = βu +(D/E)*(βu-βd). And the “Target D/E” was found by taking “Target D/V” divided by “1-Target D/V”. So we get the new βe, 1.3576. Then to get cost of equity, we use the CAPM formula, Re=Rf+β(EMRP), 11.7679%. Since we have get the cost of equity and cost of debt, we can determined the WACC, which is equal to Equity/Value*Cost of Equity+Debt/Value*Cost of Debt*(1-tax rate). In the end ,we arrived at 8.48%.

b.What are the amounts and timing of the acquisition investment’s free cash flow from 2013 through 2022?

We assume that risk free rate (Rf) equals rate of long-term Treasury Bonds (as the project’s life is 10 years), so Rf = 9.5%.

How did you measure the cost of debt for each division? Should the debt cost differ across divisions? Why?

Manage rather than own hotel assets In 1987, Marriott developed more than $1 billion worth of hotel properties, making it one of the 10 largest commercial real estate developers in the United States. With a fully integrated development process, Marriott identified markets, created development plans, designed projects, and evaluated potential profitability. After development, the company sold the hotel assets to limited partners while retaining operating control as the general partner under a long-term management contract. Management fees typically equaled 3% of revenues plus 20% of the profits before

4. Compute a separate cost of capital for the E&P and Marketing & Refining divisions. What causes them to differ from one another?

15. What is the Present Value (NPV) to Sterling of the base investment using FCF for 2013-2033?

The growth strategy of Four Seasons Hotels and Resorts, Inc is multifaceted. Their growth strategy is driven by opening the finest hotel, in the right destination, which will lead to the right economics for the hotel owner. They not only discover destinations where their consumers want to go, but target those markets where they want to create their presence and to increase awareness for future Four Seasons’ travelers. But at the same time investigate opportunities to engrain their positions in those destinations, where they have already operated. According to Kathleen Taylor ‘Four Seasons has approximately 50 projects in various stages of design and construction. The vast majority will come outside the U.S., with a focus on China, India and Latin America. There are lots of cities in those areas where Four Seasons needs to

iii. Prepare a basic discounted cash flow analysis; i.e. compute incremental cash flows and a terminal value, and discount them at a weighted average cost of capital. Can you do a multiples-type analysis here as well?

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

Since its foundation in 1927 Marriott Corporation grew into one of the leading lodging and food services in the US. With three major business lines: lodging, contract services and related business, Marriott has the intention to remain a premier growth company. To achieve this goal the corporation’s strategy is to develop aggressively appropriate opportunities within their business lines. Marriott would like to be the preferred employer, the preferred provider and the most profitable company in each of the operating areas. The financial strategy includes four key elements:

So, the 20 year corporate bond interest rate associated with the company’s rating is 3.86.

• Compute a separate cost of capital (WACC) for the lodging business, contract services business and restaurant business.

The following case analysis portraits the use of capital asset pricing model to compute the weighted average cost of capital for Marriott and each of its divisions. The flow of events below is following a string of different evaluations, each of which is assessed separately.

3) What is the weighted average cost of capital and why is it important to estimate it? Is the