Marriott Corporation: the Cost of Capital

Bethesda, Maryland is the headquarters of Marriott International Incorporate. This unique organization transpired from a root beer stand in 1927 into a world-renowned hospitality hotel chain in 1957. Information provided will focus on the evolution of the root beer stand into the Marriott International Incorporate vast hospitality empire. Today, the Marriott hospitality industry has 5,756 hotels with 30 brands in 118 countries with 1.1 million rooms. Additionally, the Marriott generated $14 billion in revenue during 2016 and had over 85 million combined loyalty members between the Marriott and Starwood Preferred Guest reward programs. Furthermore, Marriott partnered with Universal Music Group to bring their rewards member’s additional

According to the newspaper, the Rf (risk free-rate) for a long-term Government of Canada Bonds is 5.82%. The RM (return on the market) as the geometric average for Market Index is 10.2%. For the accuracy reason, we chose to use the geometric average for both long-term government bonds and market portfolio.

57.14% 42.86% 35.71% 26.00% Duration of the perpetuity = 1.04/0.04 = 26 years Duration of the zero = 1 years 14 = (wz)(5) + (1 – wz)26; wz = 57.14% Learning Objective: 11-04 Formulate fixed-income immunization strategies for various investment horizons.

The idea of repurchasing shares was no stranger to Bill Marriott by January 1980. Almost five million shares of common stock had been repurchased on the open market by Marriott Corporation during 1979 at a total cost of $74 million and an average price of $15.16 in the belief that they were undervalued—a belief that still was not fully reflected in the market price. At $19 5/8, the stock was selling at only six times cash flow per share; and its price/earnings ratio of nine was a far cry from historical multiples as high as fifty times as recently as 1973. Its low price seemed to offer once again an obvious opportunity to benefit shareholders. However,

In this case, the Partner’s Treasury Department has computed all the portfolios for minimum level of risk with different types of assets, more specifically, adding Real Estate Investment Trusts (REITs), Commodities or both, from an undefined approach. Since the results are identical as calculated from Mean-Variance Theory, they should be the optimal portfolios for each target level of return. Therefore a graph with efficient frontier, which represents the optimal portfolios with different assets, is constructed based on Exhibit 5 to 8 for comparison. [Appendix B] Technically, any portfolio on the efficient frontier is an optimized portfolio and is indifferent from each other in terms of risk/return trade off.

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.

a) It is advisable to manage than to own as it is consistent with the growth strategy. In this manner, mar riot can attract additional capital that gives it an opportunity to even invest more in the future, share the risks with limited partners. The partnership can be of great benefit as it is a good way of saving on taxes.

Marriott Corporation began from root bear stand, and developed to be the leading supplier of food services and leading logging company in the U.S. The leading parts of the business were lodging, contract services, and restaurants. Their intentions regarding the business strategy was to focus on employees and customer satisfaction. In that way, they can remain the leading growth company. The financial strategies used were:

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

Marriott International envisions itself to be the world’s lodging leader. Its mission is to provide the best possible lodging services experience to customers who vary in backgrounds, language, tradition, religion and cultures all around the world. Marriot is committed to environmental preservation through using environment-friendly technology and engages in social responsibility and community engagement.  We value our shareholder’s so we will only take steps that will ensure our growth. Most importantly, through our “spirit to serve”, we emphasize the importance of Marriott’s people and recognize the value they bring to the organization’s growth and success. It aims to increase revenues by 9% every year, to increase

Although this investment class can be considered the most conservative of the three, the low yield of government bonds in the past 10 years does not lend a comparative metric against many other investment opportunities (Jacobs, 2012). The fixed rate of these instruments allows for a guaranteed return, but should only be utilized at a point in an investing cycle when risk is higher than potential income growth. The 25% allocation that is invested in this class is positioned to provide a long term guaranteed investment, with the possible that these lower rates will not rise significantly in the next few years.

The four components of Marriott's financial strategy are consistent with its growth objective. Managing hotel assets multiplied the total worth of hotels than otherwise owned by it, thus increased EPS. Optimizing the use of debt in the capital structure, based on a

As we can see from the table, we set the interest rate of borrowing at 9.5% .

TABLE NUMBER 1). 2). 3). 4). 5). 6). 7). 8). 9). TITLE LIST OF INVESTMENT BANKS LIST OF MUTUAL FUNDS LIST OF TIME SERIES TESTS CARRIED

To properly analyze fixed-income securities, we established six major factors to consider. First is the security’s depth of the market. Have there been significant changes in the market since the financial crisis? The second factor is the main players in the market. This includes issuers and buyers of the financial instrument along with any other servicing institutions. The third reason, the purpose of the investment. Fourth is the current condition of the financial instrument’s secondary market. How active is it? Are there transaction costs? How are the instruments priced? The fifth factor is the risks in the investments. Last but not least is the sixth reason which is the financial instrument’s valuation. How should intrinsic value be