Marriott Essay

595 Words3 Pages
Marriott Corporation: The cost of Capital (Abridged) In this case, I have chosen to discuss the principles that Marriott employed in order to meet its overall goals and objectives. One of the objectives of the company is to be a premier growth company, thereby investing aggressively in appropriate growth opportunities and being the most profitable company. Firstly, I think that the strategy of managing rather than owning hotel assets goes against their growth objective. Marriott’s agreement with its limited partners is that after development of the property, it will have decision making capacity regarding its operations only. Therefore, it is unlikely that Marriott will be able to exercise decisions relating to investing and financing of projects and use of capital generated from hotel assets and operations. Since most growth opportunities require investment of capital (e.g., for acquisitions), this will limit Marriot’s ability to pursue “aggressive investments in growth opportunities”. Had Marriott owned these assets, it would have full authority in making decisions to invest cash generated from hotel operations in profitable projects in its three business lines since it would not be required to distribute earnings from operations to investors under the “specified return clause”. In theory, it could use the cash to further its growth opportunities as opposed to borrowing cash through issue of debt. This would increase profitability and earnings of the company due to reduction in interest payments and better use of cash. Secondly, Marriott repurchases its undervalued shares whenever its warranted equity value is higher than the market price. Marriott believes that repurchasing the shares is a better use of its cash flow and debt capacity. Every time Marriott repurchases its shares, it does manage to increase its share price but only temporarily. Since, Marriott
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