MARRIOTT CORPORATION: THE COST OF CAPITAL Lodging Division Cost of Debt From Table A, * Fraction of Debt at Floating: 50% * Fraction of Debt at Fixed: 50% Using credit risk premium to calculate cost of debt, the equation is as follows: Cost of Debt = Low risk rate+Risk premium Floating Rate -- Assume the interest rate of floating rate debt changes every year so we use 1-year rate U.S. Government interest rate, which is 6.90% (from Table B). Therefore, the cost of floating rate debt equals 6.9% plus the 1.1% risk premium, which totaled to 8%. Fixed Rate -- As lodging assets have long useful lives, we use the long-term debt rate, i.e. 30-year U.S. Government interest rate, which is 8.95% (from Table B). Therefore, the cost of fixed rate debt equals 8.95% plus 1.1% risk premium, which totaled to 10.5% Cost of Debt = (0.5 x 0.08) + (0.5 x 0.105) = 0.095 = 9.25% [since floating rate and fixed rate debt both weigh 50%, we use the weighted average approach to calculate the total cost of debt rate] Based on historical data analysis below, we get an average income tax rate of 42%.
JULIO OLAGUE MARRIOTT CORPORATION: The Cost of Capital (Abridged) March 25th, 2015 Company Description Marriot Corporation is a major competitor in the lodging and food service industry in the United States. Its three major lines of business are lodging, which includes 361 hotels, contact services, which provides food and service management to institutions and airline catering through its InFlite services, and restaurants, which includes Bob’s Big Boy, Roy Rogers, and Hot Shoppes. Key Points (Changes to the WACC) Marriott’s WACC: Lodging WACC: Contract services WACC: Restaurants WACC: 8.57% 10.24% 7.55% 10.68% Recommendation Marriott Corporation should use a different weighted average cost of capital (WACC) for each division in order for projects to be valuated correctly. Share repurchases should only be done when there is excess cash to both, buy back the shares, and to fund future investment projects. EXECUTIVE SUMMARY Based on our weighted average cost of capital calculation (WACC) we determined that Marriott Corporation should use a different hurdle rate for each of its three divisions, as well as for the entire firm.
Please refer to tab labeled “Calculations and Tables” for details of the calculations used and the Tables noted in our report. Should you have any questions or concerns, please do not hesitate to contact us. Respectfully Submitted, Group One, LLC Background and Problem Statement Marriott Corporation (MC) was started in 1927 and is currently a multibillion dollar business involving hotels, contract services and restaurants. MC manages hotels that range from moderately priced (Fairfield Inn) to high quality (Marriott hotels). Contract services provide food and management services as well as
Second, Cost of Equity should be found. Cost of Equity is different for different countries, but it uses US risk free rate and risk premium rate because all debt is financed in USD. Risk free rate is 4.5%, which is 10 year US Treasury Bond, US risk premium is 7%. Using the equation: Cost of Equity =risk free rate +leveraged beta* US risk Premium, we have the cost of equity of Red Oak is 0.07393, the cost of equity of Caracoles is 0.1041. Third, Cost of Debt=Risk free rate+ Default Spread.
A CASE STUDY Activity-based Costing and Pricing Submitted by: Maryland Tano August 24, 2011 Requirements: 1. Using direct labor-hours as the base for assigning manufacturing overhead cost to products, do the following: a. Determine the predetermined overhead rate that will be used during the year. Data given: * Estimated manufacturing overhead cost $ 2,200,000 * Direct labor hours 50,000 hours Answer: Predetermined overhead rate = $ 2,200,000 = $ 44 per DLHs 50,000 hrs b. Determine the unit product cost of one pound of the Kenya Dark coffee and one pound of the Viet Select coffee.
COMPANY PROFILE 2. COMPANY FINANCIAL III. PESTEL analysis (500wd) 1. Political 2. Economic 3.1 contribution of Marriott to UK GDP 3.2 Contribution of Marriott to employment in the areas 3.
1. The corporate tax rate Tax rate = Income taxes = 175.9 = 44% (from Exhibit 1) Income before income taxes 398.9 2. The debt ratio for each division (from Table A) 1) Hotels (Lodging): debt ratio=74% 2) Restaurants: debt ratio=42% 3) Contract Services: debt ratio=40% 3. The cost of debt for each division rD= government bond rate + credit spread (from Table A & Table B) 1) Hotels (Lodging): rD= 8.95%+1.1%=10.05% (long term Gvnt bond rate) 2) Restaurants: rD= 6.9%+1.8%=8.7% (short term Gvnt bond rate) 3) Contract Services: rD= 6.9%+1.4%=8.3% (short term Gvnt bond rate) 4. The cost of equity for each division (book value of debt)* A. Unlevered beta for Hotels (from Exhibit 3) | Market leverage (D/V) | Equity beta(βc) | Tax rate | Unlevered beta=βc/[1+(1-T)D/E] | Hilton | 14% | 0.88 | 44% | 0.81 | Holiday | 79% | 1.46 | 44% | 0.47 | La Quinta | 69% | 0.38 | 44% | 0.17 | Ramada | 65% | 0.95 | 44% | 0.47 | Average | | | | 0.48 | Unlevered beta for Restaurants | Market leverage (D/V) | Equity beta(βc) | Tax rate | Unlevered beta=βc/[1+(1-T)D/E] | Church’s | 4% | 0.75 | 44% | 0.73 | Collins | 10% | 0.6 | 44% | 0.57 | Frisch’s | 6% | 0.13 | 44% | 0.13 | Luby’s | 1% | 0.64 | 44% | 0.64 | McDonald’s | 23% | 1 | 44% | 0.86 | Wendy’s | 21% | 1.08 | 44% | 0.94 | Average | | | | 0.65 | Unlevered beta for Marriott Corporation: | Market leverage (D/V) | Equity beta(βc) | Tax rate | Unlevered beta=βc/[1+(1-T)D/E] | | 41% | 0.97 | 44% | 0.7 | Unlevered beta for Contract Services: (from Exhibit 2) | Identifiable assets (1987) | percentage | Hotels (Lodging) | 2777.4m | 61% | Restaurants | 567.6m | 12% | Contract Services | 1237.7m | 27% | Total | 4582.7m | | 61%×0.48+12%×0.65+27%×βu(c)
The Four Seasons Inc. manages more than 82 hotels and resorts in 34 countries all over the world. The company owns its hotels under Four Seasons and Regent Hotels, as well as Ritz- Carlton and Pierre. In 2007, the Four Seasons went through a crisis and they agreed to a buyout by Microsoft Chairman Bill Gates and Prince Al-Waleed bin Talal of Saudi Arabia. Four Seasons Hotel Gresham Palace, Budapest is a part of the luxury hotels and resorts chain. It is located along the historic River Danube, adjacent to Roosevelt Square and the eastern terminus of the Szechenyi Chain Bridge.
From 1989 to 1996, Zara ventured into businesses geologically. From 1997 to 2005, the internationalization experience gained has empowered Zara to extend quickly neglecting the land separation and social contrasts. Zara has 1,723 stores spotted in 77 nations by end 2010. Abroad deals helped more than 60% of its aggregate deals. So as you can see in above factors Zara 1st moved into the countries which has same kind of geographical and cultural characteristics, and then moved to other countries in Europe, Asia and Africa by using different approaches like joint ventures and franchising.
HILTON HOTELS (Brand Differentiation through CRM) Group Assignment (Part: 1) GBMP 508-02 Submitted by: Farrukh Shafaat (821-220-696) Abraham Mathew (821-189-289) Harikrishnan Rajeev (820-871-333) Prateek Sodhi (821-182-672) Sumeet Raju (821-166-576) Dapinder Singh (820-921-872) Hilton is the global leader in the hospitality industry operating more than 3200 hotels and resorts in 77 countries across six continents. Hilton Hotels Corp is engaged in the ownership, management and development of hotels, resorts and timeshare properties, and the franchising of lodging properties Hilton remains synonymous with hotel because of its innovative approach to products, amenities and service. Hilton is the most recognized name in the global lodging industry. The Hilton Hotel group is one company that has adopted a balanced scorecard approach. It measures its CRM performance by reference to 5 different sets of metrics: operational effectiveness, revenue maximization, customer loyalty, brand standards and learning and growth.