Harvard Business School 9-298-101 Rev. March 18, 1998 Marriott Corporation: The Cost of Capital In April 1988, Dan Cohrs, vice president of project finance at the Marriott Corporation, was preparing his annual recommendations for the hurdle rates at each of the firm 's three divisions. Investment projects at Marriott were selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division. In 1987, Marriott 's sales grew by 24% and its return on equity stood at 22%
Análisis Caso Marriott Corporation: Costo de Capital En el caso se plantea que Marriott utiliza cuatro elementos en su Estrategia Financiera las cuales apuntan a un crecimiento objetivo. Por lo que, se pregunta, ¿Son consistentes estos elementos con su crecimiento objetivo?, y para ello se realiza el siguiente análisis. I. Análisis de los Elementos de Estrategia Financiera: Primero debemos identificar que el alto crecimiento que busca Marriott es igual a maximizar el valor de la empresa y para
To : President, Marriott Corporation From : FLO299 Subject : Marriott Corporation – The Cost of Capital Date : April 6, 2010 The Importance of the Cost of Capital The cost of capital is important as it forms the basis for Marriott’s investing and financial decisions. By understanding and knowing the cost of capital, Marriott is able to select relevant investment projects for the company, determine incentive compensation, and repurchase undervalued shares when needed. The returns
1. Identify several major categories of segmentation used by Marroitt. Marriott decided to enhance travelers’ value by segmenting the market and then targeting selected segments, each with a different brand. Then as now, Marriott was the flagship brand. Each new brand would support Marriott’s overall brand identity — a commitment to superior customer service — and train employees to have a passion for service. Marriott’s flagship brand continues to target customers needing fine restaurants
Financial Decision Analysis~Marriott Corporation Case Study Executive Summary – Q5 – Hurdle Rate Analysis 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
downturn in the gaming industry translating into sluggish results in Hilton’s gaming segment, the company spun off its gaming interests as Park Place Entertainment. In 1999 Hilton made a massive acquisition with the $3.7 billion purchase of Promus Hotel Corp. The following year Hilton sold its flamingo Casino-Kansas City, a remaining casino property left over from the Park Place spin off, to Isle of Capri Casinos for $33.5 million. In 2001 it sold 56 of its leases and management contracts to RFS Hotel
the opportunities it holds. I then transferred, in the 11th grade, to a charter school that was started by Mr. William Marriott, the CEO of Marriott International. The school was called Marriott Hospitality Public Charter High School, where students that wanted to study hospitality could attend and take hospitality classes. During high school, I worked part-time at the Marriott at Metro Center in Washington, DC to gain experience in the industry. I graduated in June of 2005 with honors and
a. What business is Marriott in? Are the four components of Marriott’s financial strategy consistent with its growth objective? b. How does Marriott use its estimate of its cost of capital? Does this make sense? c. What is the weighted average cost of capital for Marriott Corporation? • What risk-free rate and risk premium did you use to calculate the cost of equity? • How did you measure Marriott’s cost of debt? 1. Are the four components of Marriott 's financial strategy consistent
balanced scorecard had been a considerable challenge because of the complicated nature of the hotel industry * Maverick Lodging: managed hotels on behalf of 3rd party owners who had franchise agreements with Marriott * Maverick concentrated on managing 3 specific types of Marriott properties: Fairfield Inns, Courtyards, & Resident Inns * Fairfield & Courtyards: offered typical variety of hotel rooms * Residence Inns: offered “suite arrangements” that incl. a
each firm, calculate unlevered. (b) Using your answer in part (a), what would you predict the equity beta to be for a firm in the restaurant industry with $300 million in debt and $600 million in equity? (Hint: Adopt the method we used in the Marriott case.) 3. [10 points] We want to determine cost of equity for Firm A. We know that Firm A’s target debt-toequity ratio is 1.50. We also know that there is a comparable firm which has exactly same lines of business and therefore is expected to have