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Marriott Corporation: The Cost of Capital
Problem Analysis
Capital Asset Pricing Model (CAPM)
As did Marriott in the case study, we will use the Capital Asset Pricing Model (CAPM) for help in determining the cost of equity - the return we expect from the company and each of its divisions.
Our goal is to calculate the Weighted Average Cost of Capital (WACC) for Marriott on the whole and each of its three divisions - Lodging, Contract Services, and Restaurants. To do that, we must first calculate the two major components of WACC, cost of debt (rdebt) and return on equity (requity).
Cost of Debt (rdebt)
The cost of debt, rdebt, is the yield on the company's debt, which we get largely from Table A and Table B from the case study. Because Marriott has an excellent debt rating, it gets an additional premium beyond the usual bond rate. This premium is different for the company and each of its divisions, as shown in Table A of the case study. To assist in determining the base rate,......

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Approximate Word Count: 3534
Approximate Pages: 15 (250 words per double-spaced page)

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