Cost Of Capital
In April l988, 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 (ROE)Stood at 22% .Sales and earnings per share had doubled over the previous 4 years, and the operating strategy was aimed at continuing this trend. Marriott’s 1987 annual report stated:
We intend to remain a premier growth company-This means aggressively developing appropriate opportunities within our chosen lines of business—lodging，contract services, and related businesses. In each of these areas, our goal is to be the preferred employer-the preferred provider, and the most profitable company.
Cohrs recognized that the divisional hurdle rates at Marriott would have a significant......
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