Marriot Case Essay

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2. For the Lodging Division, we decided to include all 4 comparables (plus Marriott) given the similar nature of their businesses. Including all 4 comparables helps us reduce estimation error of beta. For the Restaurant Division, we decided to include 4 out of the 5 comparables given in the case. We eliminated Church’s Chicken because they have a gaming business and we thought this would disproportionately increase the margins for a restaurant business. We also did not include Marriott because their restaurant division represents a relatively small proportion of their business. Finally, for the Contract Services Division, we elected to include both Luby’s and Marriott. From our understanding of Luby’s Cafeterias, they operate a business that is similar to Marriott’s institutional food services. The information provided in the case regarding MRP did not conform to our understanding of generally accepted MRP’s as discussed in class. We initially looked at the spreads between the S&P 500 and Short-term T-Bills, but felt that the MRP spreads were too high. As we learned in class, the MRP is generally accepted by academics as to be decreasing over time and this is reflected in the decreasing spreads provided in the case. Therefore, we decided to go with a conservative estimate of 5%. 3. If Marriott used a single cost of capital for evaluating investment opportunities, they would accept some projects that would not generate the same returns as they might get in other investment opportunities, and reject some projects that could generate more returns than they could get from other investment opportunities. If they use a hurdle rate that is higher than it should be, then their growth would be reduced. Conversely, if they use a hurdle rate that is lower than it should be, their growth would be

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