Weighted Average Cost of Capital and Marriott
Q1:
The first financial strategy “Manage rather than own hotel assets” is consistent with growth objectives. The company sold out the hotel assets while keeping a long-term management contract. We calculated the Return on Assets (ROA) from 1978 to 1987, it increased a little in 1979 and kept decreasing to 1987(Exhibit 1). By managing rather than owning the hotel assets, Marriott is able to increase its ROA thereby increasing potential profitability and its financial position in the market. Marriott also improves its efficiency as the general partner under long-term management contract because it can decrease useless expenses and guarantee a part of the partnership’s debt.
The second financial strategy is investing in projects that increase shareholder value. Marriott uses the discounted cash-flow techniques to evaluate potential investments that falls in line with Marriott’s growth objectives. It is beneficial because it considers the present time value of investment. By comparing to its hurdle rates, Marriott concentrates on the projects which will bring potential return. The projects which increase shareholder value can result in profitable and competitive advantage.
The third financial strategy of optimizing the use of debt in the capital structure helps the company to maximize the revenues from its debt’s management. Marriott invests a large sum of money in long-term asset. It is essential to maximize and optimize its long-term debt to meet the need of investment. Generally, Marriott optimize the use of debt in its capital structure helps the company maximize revenues from its debt’s management.
The fourth financial strategy of repurchasing undervalued shares is also accordance with the growth objectives. Marriott calculates a “warranted equity value” and will repurchase its stocks if the price falls below the “warranted equity value”. By selling its undervalued common shares, Marriott is able to increase the profits. Also, the company uses the
The first financial strategy “Manage rather than own hotel assets” is consistent with growth objectives. The company sold out the hotel assets while keeping a long-term management contract. We calculated the Return on Assets (ROA) from 1978 to 1987, it increased a little in 1979 and kept decreasing to 1987(Exhibit 1). By managing rather than owning the hotel assets, Marriott is able to increase its ROA thereby increasing potential profitability and its financial position in the market. Marriott also improves its efficiency as the general partner under long-term management contract because it can decrease useless expenses and guarantee a part of the partnership’s debt.
The second financial strategy is investing in projects that increase shareholder value. Marriott uses the discounted cash-flow techniques to evaluate potential investments that falls in line with Marriott’s growth objectives. It is beneficial because it considers the present time value of investment. By comparing to its hurdle rates, Marriott concentrates on the projects which will bring potential return. The projects which increase shareholder value can result in profitable and competitive advantage.
The third financial strategy of optimizing the use of debt in the capital structure helps the company to maximize the revenues from its debt’s management. Marriott invests a large sum of money in long-term asset. It is essential to maximize and optimize its long-term debt to meet the need of investment. Generally, Marriott optimize the use of debt in its capital structure helps the company maximize revenues from its debt’s management.
The fourth financial strategy of repurchasing undervalued shares is also accordance with the growth objectives. Marriott calculates a “warranted equity value” and will repurchase its stocks if the price falls below the “warranted equity value”. By selling its undervalued common shares, Marriott is able to increase the profits. Also, the company uses the