Marriott Corporation: The Cost of Capital

Divisional overleap says at Marriott have a profound impact on the firm?s fiscal and run strategies. Marriott measures the opportunity hail of capital for investments of similar flak apply the Weighted Average Cost of crown (?WACC?). The desktop of this synopsis is to assist Marriott in leading the enchant hurdle rate for each(prenominal) division as of April 1988 (?Valuation Date?). As the risk entailed in each division is different, Marriott should discount divisional exteriorizes at the division?s hurdle rate. In put up to select the appropriate hurdle rate, the WACC of each division and of the union as a whole are calculated and enforce as a proxy for the divisional and corporate hurdle rates. WACC AnalysisGeneral ConsiderationsThe spare-time activity steps were taken to calculate the WACC of each of the divisions and for Marriott:1) We utilize the Capital Asset Pricing Model (?CAPM?) to calculate the address of candor. 2) The cost of debt was bumpd b y adjusting the pre- revenue enhancement return on debt capital for the tax benefit associated with the deductibility of interest on debt3) The appropriate market nurse weights for debt and equity as a region of the market order of invested capital were applied to the cost of equity and the cost of debt to determine the corresponding WACC.

The rationale for some inputs was vernacular:(1) Risk go off Rate: We believe the around appropriate risk ingenuous rate to use for the cost of capital of Marriott and its divisions is the rate that corresponds with the pass judgment economic flavor of each project. Since Marriott a nd the Lodging Division some(prenominal) ha! ve projects with economic lives lasting than 10 years, we used the 30 yr. U.S. government interest rate as of the Valuation Date. Because the separate divisions (contract services and restaurant) have project lives around ten years, we used the 10... If you want to get a full essay, order it on our website: OrderCustomPaper.com

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