| Marriott Corporation:The Cost of Capital | Case Analysis | | | GROUP ONE, LLC 123 Woodward, Detroit, MI, Ph: (313) 570-1000 April 5, 1988 Mr. Dan Cohrs Vice President of Project Finance Marriott Corporation 10400 Fernwood Road Bethesda, MD 20817 Dear Mr. Cohrs, Thank you for selecting Group One, LLC. We have reviewed Marriott’s financial information provided; the company’s planned financial strategy, current market conditions, and overall and financial information on comparable competitors. Based on the information gathered and reviewed we have prepared discount rates for Marriott’s three divisions: Lodging, Contract Services and Restaurants. In addition, per MC’s request Group One has reviewed whether divisional discount rates should be used to determine incentive compensation. Briefly, it is Group One’s recommendation that Marriott use divisional discount rates based on each division’s industry to discount future project cash flows.
The lodging division’s WACC was 10.24%, the restaurant division’s WACC was 10.68%, and the contract services division WACC was 7.55%. MARRIOTT CORPORATION WEIGHTED AVERAGE COST OF CAPITAL (WACC) In order to determine the WACC for the entire firm we computed Marriott’s cost of debt before
Identify and analyze the risks of investing in Boston Beer. Using the financial data in the case, evaluate Boston Beer’s performance relative to both its craft brew peers and to the Tier One brewers. How much would you be willing to pay for a share of Boston Beer, and why? A suggested plan for the valuation – First value the Boston Beer IPO share price using the P/E ratios of the two craft brew comps. In your P/E valuation you should note characteristics of the two comps that might make one of the comps more relevant and applicable than the other comp, and feel free to make a blend of the multiples from the comps.
We must now decide if we should accept George Alward’s request to allow him to stay at the hotel for half the price of the regular rate. I believe that Justin McGregor should accept George’s request and offer him the discounted
The discount rate above should only be used to discount unlevered cash flows. The discount rate to use on the terminal value needs to take into account the capital structure of the levered firm, thus we use WACC instead of just re. Question 2: A. The long-term growth rate that should be used for estimates of AirThread’s terminal value is 2.16%. This is equal to the return on capital
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%.
In conclusion, if Hill Country were to engage in the leveraged recapitalization, this report would highly recommend the 20% debt-to-capital ratio be used to repurchase shares. AFF5300 CASE STUDIES IN FINANCE: CASE STUDY 2 Table of Contents 1.0Introduction2 2.0Hill Country Snack Foods Co.2 3.0Literature Review3 3.1Modigliani and Miller Theorem Capital Structure3 3.2Trade-Off Theory3 3.3Perking Order Theory 3 4.0Estimating the Effect of a Leverage Recapitalisation3 4.1Impact on Cost of Capital3 4.2Assumptions and Limitations4 4.3Financial Distress5 4.4Signalling5 4.5Clientele Effects6 5.0Recommendations and conclusions6
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)
Course Work PAPER: MBA ()DISSERTATION A Critical analysis of Customer service in relation with Customer satisfaction in Marriott hotel, London. Table of Contents Page No Abstract 5 Declaration of Originality 6 Acknowledgements 7 Chapter 1 1.1 Introduction to the Problem 8 1.2 Background 8-10 1.3 Aim and Objectives 11 1.4 Justifications 11-12 1.5 Limitation of the research 12 1.6 Company Background 12 1.7 Conclusion 13 Chapter 2 Literature Review 2.1 Introduction 14 2.2 Measuring the Customer Service 14-15 2.2.1 Components of Customer Service 16 2.3 Service VS Satisfaction 17-18 2.4 Relationship in Service Industries 18-20 2.5 Relationship Commitment and Quality 21 2.6 Service Quality 22-23 2.6.1 Service Quality in Hotel Industry 24 2.6.2 Interrelationships among Service Quality and Customer service 24-25 2.7 Multi-expectation Framework 25-26 2.7.1 Technology 26-27 2.7.2 Customer Value Delivery 27-29 2.8 Conclusion 29 Chapter 3 Methodology 3.1 Introduction 30 3.2 Secondary Research 30 3.3 Primary Research 31 3.4 Research Approach 32 3.4.1 Inductive Approach 33 3.4.2 Deductive Approach 34 3.5 Research Design 35 3.6 Purpose of Study 36 3.7 Data Collection Method 36 3.8 Semi Structured Interviews 38 3.9 Ethics 38 3.10 Limitations of Research & Conclusion 39 Chapter 4 Data Analysis 4.1 Introduction 40 Section A 4.2: Reporting of findings (Questionnaires) 40-50 4.3 Reliability Analysis 40 4.4 Total Variance Explained 51 Section B 4. 5.
Two European Hotel Groups: Equity Analysis Table of Contents Introduction ........................................................................................................................................... 3 Business Description ......................................................................................................................... 4 Industry Analysis ................................................................................................................................. 5 Current State of the Hospitality Industry ....................................................................... 5 Future of the Hospitality Industry ..................................................................................... 5 Financial Results in 2005 ................................................................................................................. 6 International Financial Reporting Standards ............................................................... 6 Accord ............................................................................................................................................ 7 NH Hotels ..................................................................................................................................... 8 Financial Analysis & Valuation ................................................................................................... 10 Price Earnings & Market to Book Ratios ....................................................................... 10 Return on Equity