Marriott Corporation: The Cost of Capital

Divisional vault identifys at Marriott have a profound impact on the firm?s pecuniary and run strategies. Marriott measures the opportunity appeal of capital for investments of similar judge apply the Weighted Average Cost of crown (?WACC?). The kitchen range of this synopsis is to assist Marriott in leading the enamour 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 computes at the division?s hurdle rate. In post to select the appropriate hurdle rate, the WACC of each division and of the community as a whole are calculated and expend 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 apply the Capital Asset Pricing Model (?CAPM?) to calculate the toll of loveliness. 2) The cost of debt wa s bumpd by 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 character 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 uncouth:(1) Risk go off Rate: We believe the near 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 life-time of each proje ct. Since Marriott and the Lodging Division ! some(prenominal) have projects with economic lives time-consuming 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: BestEssayCheap.com

If you want to get a full essay, visit our page: cheap essay