Marriot Case - 633 Words

Alexandria Cooker Group Project 2 1. Manage rather than own hotel asset: holding the whole hotel assets is more risky than just managing the hotel. Normally management fees are 3% of the revenue plus 20% of the profits before depreciation. After the company was developed, Marriot sold the hotel assets to limited partners but retained management. By controlling their costs and resources its easier for them to achieve their goals because they can decrease costs and employees’ salary will be better as well as customer service quality. Invest in projects that increase shareholder value: Marriott is focused on project, which will give a potential return. To invest in projects that increase shareholder value is good for growth. Marriott†¦show more content†¦Beta: you need to first compute unlevered asset beta and then compute the levered equity beta using Risk free rate should be consistent with the time horizon Long-term equity risk premium can be a good estimate of market risk premium 7. Cost of debt = 8.72% + 1.4% = 10.12% Cost of equity = 8.72% + 1.76 * 7.43% = 21.8% WACC=((1 - 0.44) * 10.12% * 40%) + 21.8% * 60%= 15.35% 8. We can use the WACC only if the investment possibilities have similar characteristics. Investments should be related to the sector and covered in similar industries if we want to use the same WACC. 9. The hurdle rate is usually used to classify reasonable investments and a single rate could lead to wrong decisions. Risky investments may appear more profitable as they actually are and less risky projects may appear less reasonable and profitable. 10. This could increase the operating risk and so affect the profit in a negative way. It only could be favorable if all projects would have the same beta factor. 11. Hurdle rates are the required rate of return used in capital budgeting. Simply put, hurdle rates are based on the firm’s WACC. Divisional hurdle rates are sometimes used because firms are not internally homogeneous in terms of risk. 12. Lodging division= 9.61% Contract services/restaurant= 14.66% 13.Show MoreRelatedMarriot Case1265 Words   |  6 Pagesbondholders since in this case the debt being held by Marriott Corporation (MC) is risky. Project Chariot aims to create MII with low debt and HMC with high debt. Thus bondholders will find that their investment gets tied to risky real estate assets whose appreciation is uncertain. Food management which is a major segment of MC remains with MII. Thus Project Chariot aims to give shareholders the business upside and bondholders the real-estate downside. Hence this appears to be a case of risk shifting. ShareholdersRead MoreMarriot Corp Case: Cost of Capital1126 Words   |  5 Pagesservice distribution. The company headquarters are in Washington, D. C. The vice president of project finance at Marriott Corporation, prepares recommendations annually for the hurdle rates at each of the firm ¡Ã‚ ¯s three divisions. In this reflective case, the company ¡Ã‚ ¯s policies and strategies related with hurdle rates and cost of capital are discussed. In the above context, the company ¡Ã‚ ¯s policy of repurchasing its shares is also reviewed ; particularly, it focuses on the financial effects there mayRead MoreMarriot Restructuring This is a case study on the restructuring plan of Marriot Corporation by splitting itself into two companies, namely, Marriot International and Host Marriot.1719 Words   |  7 PagesMARRIOTT RESTRUCTURING A Written Analysis of a Case by Lloyd Ty Brief Synopsis of Data On October 5, 1992, Marriott Corporation announced their plan to restructure the company by splitting itself into two separate companies. The first of the two companies, Marriott International (MI), would manage and franchise over 700 hotels and motels. In addition, it would manage food and facilities for several thousand businesses, schools, retirement homes and health-care providers. 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