HBR Case #1 Marriott Corporation: The Cost of Capital Group 16—Tutorial Mon 11:30am Group members LIU Ying‚ Chloe | 1155019350 | LUO Yingying‚ Irika | 1155020931 | TIAN Tian‚ Sarah | 1155019114 | WU Jiajie‚ Jesse | 1155019061 | 17 September 2012 Executive Summary By 1987‚ Marriott Corporation had grown into a large multi-dimensional company with over $5 billion assets in lodging‚ contract services and restaurants. The company enjoyed fast growth in both sales and assets at around
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home improvement retailer. They are now the second largest retailer in the United States‚ offering 40‚000 to 50‚000 different types of home improvement supplies‚ building materials‚ and lawn and garden products. They carry a wide assortment of low-cost products‚ and offer expert advice and exceptional customer service. As an innovator of the home improvement industry‚ Home Depot has expanded into Canada‚ Mexico‚ Argentina‚ Chile‚ and Puerto Rico. Currently there are 1‚459 stores including fifty
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Nike‚ Inc Cost of Capital NorthPoint Large Cap Fund was considering whether to buy Nike’s stock or not. Nike was experiencing declines in sales growth‚ declines in profits and market share. However‚ Nike decided it would increase exposure in mid-price footwear and apparel lines‚ and it also commits to cut down expenses. The market responded with mixed signals to Nike’s changes. Kimi Ford‚ the portfolio manager at NorthPoint‚ did a cash flow estimation‚ and ask her assistant‚ Joanna Cohen to estimate
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Cost of Equity: For the risk-free rate‚ we decided to use the 30-year old Treasury yield‚ which is currently 4.6%. We believe it is important to match the time horizon when comparing financial assets. Given that stocks have essentially an endless time horizon‚ the 30-year Treasury seems a more reasonable asset by which to compare stocks. 1-month Treasury Bills‚ for instance‚ are comparable to safety-deposit boxes‚ which are completely safe‚ but cannot ever yield a return. It’s highly likely that
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Executive summary In this report we focus on Nike’s Inc. Cost of Capital and its financial importance for the company and future investors. The management of Nike Inc. addresses issues both on top-line growth and operating performance. The company’s cost of capital is a critical element in such decisions and it is important to estimate precisely the weighted average cost of capital (WACC). In our analysis‚ we examine why WACC is important in decision making and we show how WACC for Nike Inc. is
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1. What is the weighted average cost of capital for Marriot Corporation? Briefly outline the key assumptions that you made in computing the WACC. 2. What is the cost of capital for the lodging and restaurant divisions of Marriot Corporation? Briefly outline the key assumptions that you made in computing the cost of capital and outline any limitations that are presented by your analysis. 3. If Marriot uses a single company-wide cost of capital for evaluating investment opportunities in each of its
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GLOBALIZING THE COST OF CAPITAL AND CAPITAL BUDGETING AT AES 1. How would you evaluate the capital budgeting method used historically by AES? 2. If you implemented the methodology suggested by Venerus‚ what would be the range of discount rates one would use around the world? 3. Does this make sense as a way to do capital budgeting? 4. How big a value difference does this new approach make to the Pakistan project? 5. How do these cost of capital modifications translate into changed probabilities
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division‚ restaurant division and contract service division. Marriott uses Weighted Average Cost of Capital (WACC) as the hurdle rate‚ and use it to discount the appropriate cash flows when evaluate an investment project. Our goal is to determine the WACC at every division base on the information that the case has provided. First of all‚ we will determine the cost of debt‚ cost of equity and the capital structure for the whole company. Then we will compute for the tax rate‚ and calculate the WACC
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1. Marriott uses its’ cost of capital estimates to create a hurdle rate to effectively run operations. Marriott uses these estimates to operate its four financial strategies. These are managing rather then owning hotel assets‚ investing in projects that increase shareholder value‚ optimizing the use of debt in the capital structure and repurchasing undervalued shares. If the company uses its overall WACC it may have divisions accept projects with returns below their respective WACC which will result
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Marriott Case 1. What is the WACC for Marriott Corporation? Cost of Debt Tax Rate We determined this number by taking income taxes paid/EBITDA = 175.9/398.9 = 44.1% Return on debt There are two clear components of debt: fixed and floating. In order to get the fixed debt rate we took the interest rates on fixed-rate government securities and added the premium
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