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(solution) Heres another case study if you're interested. All information is


Heres another case study if you're interested.  All information is attatched       


Dr. Kiseok Nam Sawyer School of Business Suffolk University FIN 419: FALL 2015

 

GROUP PROJECT

 

Read the case study of Marriott?s Corporation, answer the following questions:

 

Use the excel tables attached. Due date is Dec. 15, 2015.

 

[Overall WACC]

 

1. Are the four components of Marriott?s financial strategy consistent with its growth opportunity? 2. How does Marriott use its estimate of its cost of capital? Does this make sense? 3. It is important to understand that hurdle rate plays a central role in Marriott?s financial strategy.

 

Explain how hurdle rates are used at Marriott in the following three activities:

 

a. Share repurchases

 

b. Capital Investments and syndications

 

c. Executive compensation 4. How should hurdle rates be determined? 5. What steps for the computation of equity costs and debt costs are required to estimate

 

Marriott?s WACC? 6. Explain how the CAPM is used to compute equity costs. Should the risk-free rate be a short

 

rate or long-term rate? What time period should be used to measure the risk premium? 7. Compute the WACC 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? 8. What type of investments would you value using Marriott?s WACC? [Divisional Hurdle Rates]

 

9. What is the overall WACC used for? When should Marriott use divisional hurdle rates? 10. If Marriott uses a single corporate hurdle rate for evaluating investment opportunities in each of

 

its lines of business, what would happen to the company over time? 11. Explain how divisional hurdle rates are measured?

 

a. Using comparables to get divisional betas

 

b. Divisional leverage and debt rates 12. Estimate the hurdle rates of each division. 13. What are the differences in the hurdle rates across Marriott?s business? Do these differences

 

make sense?

 


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