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    Marriot Case Study Calculations

    Uploaded by

    Juan
    This document contains calculations for the weighted average cost of capital (WACC) for Marriot, Lodging, Restaurant, Contract Division, and compares their risk-free rates, costs of debt, tax rates, asset betas, equity betas, and equity risk premiums. It then calculates the WACC for each. For Marriot specifically, it lists the components used directly in its WACC calculation.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd

    Marriot Case Study Calculations

    Uploaded by

    Juan
    48 views5 pages
    This document contains calculations for the weighted average cost of capital (WACC) for Marriot, Lodging, Restaurant, Contract Division, and compares their risk-free rates, costs of debt, tax rates, asset betas, equity betas, and equity risk premiums. It then calculates the WACC for each. For Marriot specifically, it lists the components used directly in its WACC calculation.

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    This document contains calculations for the weighted average cost of capital (WACC) for Marriot, Lodging, Restaurant, Contract Division, and compares their risk-free rates, costs of debt, tax rates, asset betas, equity betas, and equity risk premiums. It then calculates the WACC for each. For Marriot specifically, it lists the components used directly in its WACC calculation.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    48 views5 pages

    Marriot Case Study Calculations

    Uploaded by

    Juan
    This document contains calculations for the weighted average cost of capital (WACC) for Marriot, Lodging, Restaurant, Contract Division, and compares their risk-free rates, costs of debt, tax rates, asset betas, equity betas, and equity risk premiums. It then calculates the WACC for each. For Marriot specifically, it lists the components used directly in its WACC calculation.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 5

    Marriot

    Rf 8.72 (Table B)
    Wd 0.6 (Table A)
    We 0.4
    Re 18.99755
    Rd* 10.02
    Tax** 0.440963
    Equity Beta old 1.1 (Exhibit 3)
    Debt-to-capital ratio*** 0.497
    Equity-to-capital ratio 0.503
    Asset Beta 0.5533
    Equity risk premium 7.43 (Exhibit 5)
    Equity Beta new 1.38325
    WACC 10.95995

    *Risk-free-rate plus debt-rate-premium above government (Table B)


    **Income taxes divided by income before taxes for 1987 (Exhibit 1)
    ***Average of long-term debt percent to total capita from 1983-1987 (Exhibit 1)
    Lodging Restaurant

    Rf 8.95 Rf 6.9
    Wd 0.74 Wd 0.42
    We 0.26 We 0.58
    Re 11.05566 Re 12.20561
    Rd 10.05 Rd 8.7
    Tax 0.440963 Tax 0.440963
    Equity beta* 1.09 Equity beta*** 1.08
    Equity risk premium** 7.43 Equity risk premium**** 8.47
    Asset beta 0.2834 Asset beta 0.6264
    WACC 7.032033 WACC 9.121975

    Risk free rates obtained from Table B


    Cost of debt calculated by adding risk-free-rate plus debt-rate-premium above government (Table B)
    Tax rate calculated by dividing Income taxes by income before taxes in 1987 (Exhibit 1)
    *Average of Equity Betas of hotels (Exhibit 3)
    ** Spread between S&P 500 Composite returns and long-term U.S. government bond returns (Exhibit 5)
    ***Average of Equity Betas of restaurantes (Exhibit 3)
    ****Spread between S&P 500 Composite returns and short-term U.S. Treasury bill returns (Exhibit 5)
    Marriot

    Rf 8.72
    Wd 0.6
    We 0.4
    Re 18.99755
    Rd 10.02
    Tax 0.440963
    Equity Beta old 1.1
    Debt-to-capital ratio 0.497
    Equity-to-capital ratio 0.503
    Asset Beta 0.5533
    Equity risk premium 7.43
    Equity Beta new 1.38325
    WACC 10.95995
    Contract Division
    1988 Beta Weight
    Rf 6.9 Marriot Asset Beta 0.5533 1
    Wd 0.4 Lodging 0.2834 0.333333 0.094467
    We 0.6 Restaurant 0.6264 0.333333 0.2088
    Re 13.25335 Contract 0.7501 0.333333 0.250033
    Rd 8.7 0.5533
    Tax 0.440963
    Equity beta* 1.250167
    Equity risk premium** 8.47
    Asset beta 0.7501
    WACC 9.897458

    Risk free rates obtained from Table B


    Cost of debt calculated by adding risk-free-rate plus debt-rate-premium above government (Table B)
    *Average of Equity Betas of restaurantes (Exhibit 3)
    **Spread between S&P 500 Composite returns and short-term U.S. Treasury bill returns (Exhibit 5)
    Marriot

    Rf 8.72
    Wd 0.6
    We 0.4
    Re 18.9975475
    Rd 10.02
    Tax 0.44096265
    Equity Beta old 1.1
    Debt-to-capital ratio 0.497
    Equity-to-capital ratio 0.503
    Asset Beta 0.5533
    Equity risk premium 7.43
    Equity Beta new 1.38325
    WACC 10.9599516

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