Finance in Latin Amaerica
Valuation and financing enterprises
Professor Robert S. Hansen
Case guide questions
For some helpful ideas, have a look at “How to do case analysis”, it is on the web site.
1) Marriott
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.
Are the four components of Marriott’s financial strategy consistent with it’s growth objective? How does Marriott use its estimate of its cost of capital? Does this make sense? What is the weighted average cost of capital for Marriott Corporation? What risk-free rate and risk premium did you use to calculate the cost of equity? How do you measure Marriott’s cost of debt? Did you use arithmetic or geometric averages to measure rates of return? What type of investments would you value using Marriott’s WACC? If Marriott use a single corporate hurdle rate for evaluating investment opportunities in each of its lines of business, what would happen to the company over time? What is the cost of capital for the lodging and restaurant divisions of Marriott? What risk-free rate and risk premium did you use to calculate the cost of equity of reach division? Why did you choose these numbers? How do you measure Marriott’s cost of debt for each division? Why did you choose these numbers? How did you measure the beta of each division? What is the cost of capital for Marriott contract services division? How did you estimate its cost of equity without publicly traded comparable companies?
2) Gulf Oil Corporation
1.
2.
3.
Evaluate the economics of Gulf’s exploration and development program in net present value terms. Your computations should arrive at the present value of E&D’s annual “Net profits per barrel” = After tax profit per barrel + Tax shield per barrel – Cost of finding a barrel; keeping in mind there is a number of years between finding a barrel and producing a barrel. When Gulf was placed on the auction block, a minimum bid level was established at $70 per share. Yet only a few months before, Gulf was trading in the $40
Professor Robert S. Hansen
Case guide questions
For some helpful ideas, have a look at “How to do case analysis”, it is on the web site.
1) Marriott
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.
Are the four components of Marriott’s financial strategy consistent with it’s growth objective? How does Marriott use its estimate of its cost of capital? Does this make sense? What is the weighted average cost of capital for Marriott Corporation? What risk-free rate and risk premium did you use to calculate the cost of equity? How do you measure Marriott’s cost of debt? Did you use arithmetic or geometric averages to measure rates of return? What type of investments would you value using Marriott’s WACC? If Marriott use a single corporate hurdle rate for evaluating investment opportunities in each of its lines of business, what would happen to the company over time? What is the cost of capital for the lodging and restaurant divisions of Marriott? What risk-free rate and risk premium did you use to calculate the cost of equity of reach division? Why did you choose these numbers? How do you measure Marriott’s cost of debt for each division? Why did you choose these numbers? How did you measure the beta of each division? What is the cost of capital for Marriott contract services division? How did you estimate its cost of equity without publicly traded comparable companies?
2) Gulf Oil Corporation
1.
2.
3.
Evaluate the economics of Gulf’s exploration and development program in net present value terms. Your computations should arrive at the present value of E&D’s annual “Net profits per barrel” = After tax profit per barrel + Tax shield per barrel – Cost of finding a barrel; keeping in mind there is a number of years between finding a barrel and producing a barrel. When Gulf was placed on the auction block, a minimum bid level was established at $70 per share. Yet only a few months before, Gulf was trading in the $40