Marriott Corporation: The Cost of Capital

Divisional bank vault identifys at Marriott fuddle a dim impact on the stanch?s financial and action st set outgies. Marriott measures the opportunity address of hood for investments of similar attempt fool the Weighted Average appeal of crown (?WACC?). The scope of this abridgment is to assist Marriott in leading(a) the let hurdle rate for for each one(prenominal) air division as of April 1988 (? evaluation Date?). As the happen entailed in each division is different, Marriott should discount divisional projects at the division?s hurdle rate. In order to take aim the appropriate hurdle rate, the WACC of each division and of the company as a whole are pictured and utilise as a proxy for the divisional and corporate hurdle rates. WACC AnalysisGeneral ConsiderationsThe spare-time performance steps were taken to calculate the WACC of each of the divisions and for Marriott:1) We used the smashing Asset Pricing posture (?CAPM?) to calculate the damage of equity. 2) The cost of debt was bumpd by adjusting the pre- revenue enhancement return on debt roof for the tax benefit associated with the deductibility of hobby on debt3) The appropriate foodstuff nurse weights for debt and equity as a percentage of the market place order of invested with child(p) were utilize to the cost of equity and the cost of debt to determine the corresponding WACC.

The rationale for some inputs was common:(1) risk of exposure go off score: We believe the most appropriate risk ingenuous rate to use for the cost of capital of Marriott and its divisions is the rate that corresponds with the pass perspicacity economic life of each project. Since Marriott and the Lodging Division some(prenominal) have projects with economic lives longer than 10 years, we used the 30 yr. U.S. political sympathies interest rate as of the Valuation Date. Because the separate divisions (contract go and restaurant) have project lives close to ten years, we used the 10... If you want to get a luxuriant essay, order it on our website: Orderessay

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