# Marriott Case Notes

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a. What business is Marriott in? Are the four components of Marriott’s financial strategy consistent with its growth objective?

b. How does Marriott use its estimate of its cost of capital? Does this make sense?

c. 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 did you measure Marriott’s cost of debt?
1. Are the four components of Marriott 's financial strategy consistent with its growth objective?
2. How does Marriott use its estimate of the cost of capital? Does this make sense?
3. Using the CAPM, estimate the weighted average cost of capital for
a. Marriott Corporation
b. The lodging division
c. The restaurant division
a. What risk-free rate and risk premium did you use to calculate the cost of equity? Why did you choose these numbers?
b. How did you estimate the required rate of return on the debt of the company and on the divisions? Should the debt cost differ across divisions? Why?
c. Did you use arithmetic or geometric averages to measure average rates of returns or premia? Why?
d. How did you measure the beta of each division? Of the firm?
e. Should you take taxes into account? How?
5. What is the cost of capital for Marriott 's contract services division? How can you estimate its equity costs without publicly traded comparable companies?
6. If Marriott used a single corporate hurdle rate for evaluating investment opportunities in each of its lines of business, what would happen to the company over time?

7. Gives students the opportunity to explore how a company uses the Capital Asset Pricing Model (CAPM) to compute the cost of capital for each of its divisions. The use of Weighted Average Cost of Capital (WACC) formula and the mechanics of applying it are stressed.
8. • If students are familiar with the WACC formula, then the material can be covered in one class,

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