FratFiles

• Save Paper

Marriott cost of capital




Objective: 1) Calculate the divisional and the company cost of capital and explain the calculation.

2) Evaluate Marriott's use of company cost-of-capital rate for the individual divisions.

Cost of Capital for Lodging Division can be expressed as CC = We*Ce + Wd*Cd.

For the weights of debt and equity (We and Wd), the 1988 target-schedule rates of debt-to-assets and debt-to-equity were used as the only measures available in the case.

Cost of Equity (Ce) was calculated based on the CAPM formula. 30-year T-bond was used as a long-term risk-free security to get the risk-free rate, since Marriott used the cost of long-term debt for its lodging cost-of-capital calculations. The market premium 8.47 was the arithmetic-average spread between the S&P 500 returns and the short-term US T-bills between 1926-1987. This market premium is consistent with the current academic suggestions and it was used in all calculations of this......

View the rest of this paper...

Approximate Word Count: 680
Approximate Pages: 3 (250 words per double-spaced page)

Similar Essays

1. Marriott Cost Of Capital
   

   Marriott Cost of Capital. Marriott cost of capital Objective: 1) Calculate the
   divisional and the company cost of capital and explain the calculation. ...

2. Marriott Cost Of Capital
   

   Marriott Cost Of Capital. QUESTION 1 – Why does Marriott Corp need to set
   up new hurdle rates for its businesses? The need to set ...

3. Marriott Cost Of Capital
   

   Marriott Cost of Capital. 1) Executive Summary Marriott ... Services’ 11.254%. The
   cost of capital for Marriott’s as a whole is 8.299%. This shows ...

4. Marriott: Cost Of Capital
   

   Marriott: Cost of Capital. ... Marriott use the Weighted-Average-Cost-of Capital
   (WACC) method to measure the opportunity cost for investments. ...

5. Marriott
   

   ... explain the calculation. 2) Evaluate Marriott's use of company cost-of-
   capital rate for the individual divisions. Cost of Capital ...