Marriott Case Essay

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MEMO To: Dan Cohrs Vice President of Project Finance From: Finance Consultants School of Management Boston University Date: February 1, 2012 ------------------------------------------------- Re: Recommendations for Annual Hurdle Rate Adjustments When looking at the hurdle rates our team has deduced that using one hurdle rate for the entire Marriott Corporation is an implementation to be used with caution and only executed when looking at investing in an all-inclusive type of investment, such as a resort that consists of all segments: lodging, restaurants, and contracts. However, when investing in projects tailored to Marriott’s individual lines of business we recommend using the specific hurdle rates we calculated as can be seen in exhibit XX. Using these hurdle rates will give Marriott a more accurate depiction of the risk they face from various investment projects, enabling Marriott to make strategic investment decisions and not passing up any opportunities. For the individual business segments that Marriott operates in, for example lodging, we further dissected the WACC calculations to receive a more accurate hurdle rate for each line of business. We did this by looking at betas for companies within an industry (ex. Lodging industry – companies such as Ramada, La Quinta, etc.), and unlevering them so that they were irrespective of their unique capital structures. We then averaged all of the unlevered betas and relevered it to Marriott’s Lodging capital structure. Applying this restructured beta to our CAPM calculations provided for a much more accurate WACC calculation for the specific industries Marriott operates in. (ADD IN OTHER PART OF THE BETA

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