Marriot Corp Case: Cost of Capital

How does Marriott use its estimate of its cost of capital? Does this make sense?

Our estimated cost of capital, 20.81%, is lower than Ricketts’ expected return, 30%-50%, thus the investment is worthy. However, it’s higher than other pessimistic members’ expected return, 10%-15%, making the decision more complex and requiring further valuation。

By 1980, more than 23,000 rooms were offered through 55 hotels and resorts located primarily in the U.S. Approximately 70% of company-operated rooms were owned by outside investors and managed by Marriott under agreements averaging 70 years in length. These management agreements contributed approximately $40 million to operating profits in 1979—profits that tended to rise with inflation. Contract Food Service (32% of sales)—Marriott operated almost 300 contract food units, providing a wide range of food service capabilities to a variety of clients. It was the world 's leading supplier of catering services to airlines, with 62 flight kitchens serving domestic and international air travelers. The Food Service Management Division also managed restaurants, cafeterias, conference centers and other facilities for over 200 clients, including business, health care, and educational institutions. Restaurants (25% of sales)—Marriott 's Restaurant Group consisted of 476 company-owned units offering a variety of popularly priced food in 46 states. Roy Rogers fast food restaurants and Big Boy coffee shops accounted for 92% of the total units. Theme Parks and Cruise Ships (8% of sales)—The two Great America theme parks, located in Gurnee, Illinois, between Chicago and, Milwaukee, and in Santa Clara, California, were opened in 1976. Both parks combined a wide variety of thrill and

Hurdle rates, the weighted cost of capital that projected cash flows must exceed for initiatives to be considered, vary within Marriott Corporations due to their unique industry risk levels and capital structures. They use this number to determine which projects to accept, to adjust the rate at which the firm grows and as a measure for compensation within each business area, and as incentive compensation.

We prefer the “shareholder view”. Because the responsibility of management team is to maximize shareholder’s wealth. The debt holders can protect their interests through covenants, although those protection clauses are not written into covenants in this case. When debt holders buy the bonds, they should have already taken the scenario of dropping below investment grade into consideration when they buy the bonds. Also, although some institutional holders have to sell the bonds after them dropping below investment grades, that’s their own rule/policy, which should not have any impacts on Marriott management team’s decision making.

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

William Wrigley Jr. Company is exploring whether it is optimal to recapitalise with taking on $3 billion of debt. Three options are revised; borrow and repurchase shares, dividend payouts or continue to function with full equity. Debt will provide a tax shield of $1.2 billion given the tax rate is 40%, this should increase the market share price to $61.53 per share. The viable method for the company is to utilize this debt to repurchase shares. The will not only increase Wrigley’s market value, via the debt shield, but also signal to market that management believes Wrigley’s is undervalued, something the dividend payment won’t achieve.

Marriott international is a Corporation. The reason why we are able to tell Marriott is a corporation is mainly because of its name “Marriot International, Inc.” The Inc. stand for incorporated, which means it is run by a board of directors. Corporations have a different method of getting financial support through the selling

The decision by William Wrigley Jr. Company to do a $3 billion leveraged recapitalization through a dividend or share repurchase could create significant new value for the company. The purpose of this report is to analyze the impact this will have on the firm’s value, comment on the appropriateness of Wrigley’s debt level in the event of the proposed bond issue and make recommendations as to whether or not the firm should in fact follow through with the issue. The items of interest that will be analyzed include: the impact on share price, cost of capital, earnings per share, agency cost of debt, voting control, signaling &

Marriott International, Inc. is a global leading lodging company with more than 4,200 properties among 78 countries and territories. Marriott International announced revenues of nearly $14 billion in fiscal year 2014. Founded by J. Willard and Alice Marriott and guided by Marriott family leadership for nearly 90 years, the company is headquartered in Bethesda, Maryland, USA ("Marriott.Com," 2015). This sustained vast expansion over the last several decades is

Questions 1. If Symonds Electronics Inc. were to raise all of the required capital by issuing debt, what would the impact be on the firm’s shareholders? The impact on shareholders can be analyzed by calculating the EPS and ROE of the firm under the alternative scenarios as follows: All Debt With $5,000,000 Expansion Current Growth in Revenues Revenues EBIT Interest EBT EBT*(1-T) # of shares EPS Debt Equity Debt/Equity Ratio Return on Equity 15,000,000 2,250,000 0 2,250,000 1,350,000 1,000,000 1.35 0 15,000,000 0.00% 9.00% Worst Case 10% 16,500,000 2,475,000 500,000 1,975,000 1,185,000 1,000,000 1.185 5,000,000 15,000,000 33.33% 7.90% Expected Case 30% 19,500,000 2,925,000 500,000 2,425,000 1,455,000 1,000,000 1.455 5,000,000 15,000,000

Marriot International is a leading company with more than 3,700 lodging properties in 73 countries and territories. [Marriott International] Marriott International manages many hotels brands. Marriott Hotels & Resorts are located more than five hundred hotels, two-thirds of them - in the U.S. This is a hotel with a full range of services: they are equipped fitness and business centers, shops and swimming pools. JW, Ritz-Carlton and edition - a brand of luxury hotels. Marriott Executive Apartments provides accommodation businesspeople. Grand Residences manages the resort property. Marriott Vacation

Marriott International and Starwood Hotels and Resorts both have different unique selling points enabling them to become large hotel companies. With the merger, both companies will combine their unique qualities to encourage efficiency as well as new hotel developments. These improvements may be able to increase profitability enabling owners to have increase in their revenue (Bethesda, 2016). Due to the large increase in customer base and owning multiple properties all over the world, competition certainly has reduced as a result. Thus, this may lead to monopolization of certain hotel markets increasing profits for existing hotel owners and franchises (Butler, 2016). In addition, as both companies already have their own wide company portfolio and brands, in the long term Marriott International and Starwood Hotels and Resort can take advantage of the opportunity to explore variety of brands within the expansion of their brand families. The exponential increase in their market power and data access may lead to increase in their economies of scale, further increasing their profitability. In addition, the increase market power means the companies will have stronger bargaining power against OTAs, resulting in lower booking fees. Therefore, the reduction in their cost and increasing their appearance on the OTAs being more exposed to potential customers which may further increase their profitability as well as marketing power (Butler, 2016).

Over the last 85 years Marriott International is an American diversified hospitality company that manages and franchises a broad portfolio of 4000 hotels and related lodging facilities spread over 79 countries across the world. Marriott has upheld a commitment to responsible business, human rights, ethical and legal standards in all aspects of the business. The success of Marriott is committed to values and world class service every day.

Marriott International, Inn is an American enhanced accommodation organization that oversees and establishments a wide arrangement of inns and related hotel offices. Established by J. Willard Marriott, the organization is currently driven by his child, Bill Marriott and Chief Officer Arne Sorenson. Marriott International has more than 4,087 properties in more than 80 nations and regions around the globe, more than 697,000 rooms (starting July 2014), and extra 195,000 rooms in the advancement pipeline. In June 2014, Marriott International opened their 4,000th inn, the Marriott Marquis in Washington, D.C. On November 16, 2015, Marriott said it would buy Starwood Hotels and Resorts Worldwide for $12.2 billion. The arrangement would make the world 's biggest lodging organization.