# Marriott cost of capital case solution excel. Marriott Corp Cost of Capital Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies 2022-11-09

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The Marriott Cost of Capital case is a classic example of how a company can use financial analysis to make informed decisions about capital investment. In this case, Marriott International, a leading hotel and hospitality company, is considering expanding its portfolio by acquiring a new hotel chain. To make this decision, Marriott needs to estimate the cost of capital for the acquisition and determine whether it is financially viable.

One way to approach this problem is to use an Excel spreadsheet to perform a cost of capital analysis. This involves calculating the required rate of return for the acquisition, which is used to determine the value of the investment. The required rate of return represents the minimum return that an investor expects to receive on an investment. If the expected return is higher than the required rate of return, the investment is considered to be financially viable.

To calculate the required rate of return, we first need to gather some information about the company and the investment. This includes the company's financial statements, industry data, and market conditions. From this information, we can calculate the cost of equity and the cost of debt.

The cost of equity represents the return that shareholders expect to receive on their investment in the company. It is calculated using the capital asset pricing model (CAPM), which takes into account the risk-free rate of return, the market risk premium, and the company's beta. Beta is a measure of the company's volatility compared to the overall market.

The cost of debt represents the return that investors expect to receive on their investment in the company's debt. It is calculated by taking the company's interest rate and adding a risk premium to reflect the credit risk of the company.

Once we have calculated the cost of equity and the cost of debt, we can use the weighted average cost of capital (WACC) formula to determine the overall required rate of return for the acquisition. The WACC is calculated by weighing the cost of equity and the cost of debt according to the proportion of each in the company's capital structure.

In the Marriott Cost of Capital case, we can use this information to determine whether the acquisition is financially viable. If the expected return on the investment is higher than the required rate of return, the acquisition is likely to be a good financial decision. If the expected return is lower than the required rate of return, the acquisition may not be a good financial decision.

Overall, the Marriott Cost of Capital case illustrates the importance of using financial analysis to make informed decisions about capital investment. By using tools like Excel to perform a cost of capital analysis, companies can make sound financial decisions that help them grow and succeed in the long term.

## Marriot Corporation Case webapi.bu.edu

When you use a discounted cash flow valuation DCF and the Net Present Value NPV , you will discover that the NPV is more accurate than the DCF. Of course, you cannot just project the tax liability for the next ten years and then make a projection on the capital gain. Therefore, the overall cost of management is typically lower than the capital costs. Hence we would use geometric average for risk free rate and risk premium for each of the three divisions, as given in exhibit 5 of the case. However, this is part of the long-term management fee, which also includes the maintenance fee and the depreciation element. The information about riskfree rate and the market risk premium can be combined with equity beta of Marriott provided in the case study to calculate to cost of equity of the company.

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## Marriott Corporation

You look at the amount of changes that have occurred in the market. The last Hot Shoppes restaurant, located in the Marlow Heights Shopping Center, closed on December 2, 1999. Therefore, the arithmetic mean might be a better method in this context. When we are writing case study solution we often have details on our screen as well as in our head. The opportunity cost of capital is calculated using the WACC of Marriott.

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## Hbs Case “Marriott Corporation: The Cost Of Capital” Case Study Example

For instance, while vacation homes and commercial properties have very little depreciation, most real estate does have a significant amount of depreciation. Ruback Case Study Description Presents recommendations for hurdle rates of Marriott's divisions to select by discounting appropriate cash flows by the appropriate hurdle rate for each division. Apart from this I was also able to learn and appreciate the effects of capital structure on the cost of capital and the effects of cost of capital on the growth and profitability of the company as a whole. How did you measure the beta of each division? In my opinion, the four components of Marriott's financial strategy are consistent with its growth objective. The repurchase program could make sense if the shares are believed to be highly undervalued and the company does not have more attractive investment opportunities to utilize its cash. First, you need to find out how much your book value is when you go in the business. Since this is the case, it is common practice for businesses to employ a single cost of capital for the whole enterprise.

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## Marriott Corp. The Cost of Capital (Abridged) Case Study Solution and Case Analysis

You will also invest in a hotel for the same reason, to get a profit in the future. This segment of their enterprise continues to be a large part of their business, providing food services to many major airlines. These can be projects that add are related to the whole company and affect each division. The two inputs are thus the debt ratio in total capital and the applicable debt servicing cost. However, there is a major statistical difference between the two approaches. Willard Marriott, who had moved away with his business partner Hugh Colton and his wife Alice from Utah to Washington, D. So instead of providing recommendations for overall company you need to specify the marketing objectives of that particular brand.

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## Marriot Corporation: The Cost of Capital (Abridged) Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Should the debt cost differ across divisions? This allows the new owner to get a fair price without considering these maintenance costs. Marriott Corporation The Cost Of Capital Case Study Analysis 1. Once done it is time to hit the attach button. How can you estimate its equity cost of capital without publicly traded comparable companies? If the company continues to use a single discount rate for each of its three divisions, the project cash flows of the division with more than average risk would be overstated, while the project cash flows of division with less than average risk would be understated. However, if we are going to include the amenities and the standard of living provided, we should keep in mind that the hotels do provide some basic amenities. Please place the order on the website to order your own originally done case solution.

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## Marriott Solution

Hot Shoppes became Marriott Corporation in 1967, which subsequently split into Marriott International, Inc. In this case analysis, we are not going to focus on the actual amenities of the hotel. It is mentioned that the lodging division has more long-term assets, while assets of restaurant division are short-term in nature. Business case study paragraph by paragraph mapping will help you in organizing the information correctly and provide a clear guide to go back to the case study if you need further information. If you are receiving excellent customer service in your hotel, then you are probably getting what you pay for. Once the five years are over, the capital will be paid in two forms: the first is a cash outflow from the Marriott properties, and the second is an equivalent return.

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## Marriott Corp Cost of Capital Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

With regard to the third objective, Miller and Modigliani claimed that the use of debt, in the presence of corporate taxes, could increase the value of a company through the value added by debt tax shield. This is the same methodology used by people who buy real estate; they purchase the properties at fair market value and get paid for them at a higher price because of inflation. Using a single corporate hurdle rate for evaluating investment opportunities in each of its lines of business will lead to accept bad projects and reject profitable projects. What risk-free rate and risk premium do you use to calculate the cost of equity? Government Interest Rate 8. Begin slowly - underline the details and sketch out the business case study description map.

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## Marriott Corp.: The Cost of Capital [10 Steps] Case Study Analysis & Solution

Government Interest Rate 8. The calculations in the attached spreadsheet show that the WACC for Marriott is 10. Even though Marriott hotels have excellent value, the majority of customers still want to see greater value. There is no full consensus of which proxy for riskfree rate should be used. The traditional method is not accurate because in the current market, properties have a lot more depreciation that does not go into account. The repurchase of undervalued shares might not always be consistent with the growth objective. Brushing up HBR fundamentals will provide a strong base for investigative reading.

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## Marriott Corporation The Cost of Capital Case Study Solution and Case Analysis

However, due to the distress costs associated with excessive debt levels, a corporation should exercise caution when taking on too much debt. Did you use arithmetic or geometric averages to measure rates of returns? The higher the NPV, the lower the overall cost. This objective mitigates the investment needed to launch new hotels, as the general partner is not required to make significant investments. If an investment has a different amount of risk than the typical investment in Marriott, the company should strive to calculate the cost of capital that is consistent with the investment in question. In deciding whether to approve the project, this is helpful information to have. Implementation framework differentiates good case study solutions from great case study solutions.

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