In 1987, Marriott was focused on its cost of capital. The corporation was split into three divisions. The divisions were lodging, restaurants, and contract services. Marriott was also interested in focusing on four main points of business. They decided to focus on managing instead of owning hotel assets, invest in projects that increased shareholder value, optimize the use of debt in the capital structure and repurchase undervalued shares. They measured these new strategies and how they would affect the company with the weighted average cost of capital (WACC). Our group decided the most important question was, what is the most efficient calculation and usage of WACC for Marriot?
We began by selecting an appropriate risk-free rate and a market risk premium. The risk-free rate we selected is 3.48%. In selecting the risk-free rate, we used the geometric average return of short-term treasury bills from 1926 to 1987 because this average accounts for time as opposed to the arithmetic average. We used the range from 1926 to 1987, because the returns in the shorter time period ranges were much more volatile and did not predict the upcoming years as well. We selected our market risk premium using the geometric average return from 1926 to 1987 as well. After analyzing the spread between the S&P 500 composite returns and returns on short-term treasury bills, we chose 6.42% as our market risk premium.
After finding the appropriate risk-free rates and risk premiums, we began finding the Betas for each division of Marriott (Exhibit 1). We began by selecting an appropriate proxy firm for each of Marriott's three divisions. Lodging was the first division we analyzed. La Quinta Motor Inns seem to be the best pure-play. La Quinta's operations consisted of strictily lodging. It owns, operates, and licences motor inns which matches well with Marriott's operations in the lodging division. In order to calculate the betas of this division, we had to find the cost of debt. The cost of debt we used came from interest rates on long-term 30-yr government bonds plus it's debt rate premium because Marriot's lodging assets had long-term useful lives. After finding the cost of debt for the logding division, we calculated the division's beta of debt which came out to be 1.0233. Finally, we used the beta of debt to find the beta of the division's assets which came to .737.
The Restaurant Division was the next division we analyzed.
MCI current capital structure is x% debt and y% equity. Their key ratios are a, b, and c. Comparing to other firms in the utilities industry they appear to be underutilizing (debt/equity). (See exhibit D). Referencing the forecast there is expected to b...
The first method we will review is the accounting method. Through this accounting approach we will analyze specific ratios and their possible impact on the company's performance. The specific ratios we will review include the return on total assets, return on equity, gross profit margin, earnings per share, price earnings ratio, debt to assets, debt to equity, accounts receivable turnover, total asset turnover, fixed asset turnover, and average collection period. I will explain each ratio in greater detail, and why I have included it in this analysis, when I give the results of each specific ratio calculation.
Marriott invests a lot of money in long term assets that's why it is really necessary for the company to maximize and optimize its debt. And the company has an A rating. It means that Marriott is able to borrow an important amount of money to invest and it could be heavily indebted.
For the Balanced Scorecard section I have set up a table, which includes a strategic plan and management system to align our business activities to the mission and vision of the Hilton Worldwide brands, developed strategies to improve the internal and external communications for our location, and ways to monitor the performance over the next year. The chart will be organized into a strategy map to allow its users visual ideas of where the perspective plans connect. Subsequently, as you will see with the attached document for the 2013 Operating Budget, the hotel has revenues totally over $105,000,000 and a net operating profit of about $45,500,000 as of this year. Along with the P&L Statement, other revenue generating departments will be discussed thoroughly with estimated expenses and revenues displayed, and finished with an assessment of local comp...
In assessing Du Pont’s capital structure after the Conoco merger that significantly increased the company’s debt to equity ratio, an analyst must look at all benefits and drawbacks of a high debt ratio. The main reason why Du Pont ended up with a high debt to equity ratio after acquiring Conoco was due to the timing and price at which they bought Conoco. Du Pont ended up buying the firm at its peak, just before coal and oil prices started to fall and at a time when economic recession hurt the chemical industry of Du Pont. The additional response from analysts and Du Pont stockholders also forced Du Pont to think twice about their new expansion. The thought of bringing the debt ratio back to 25% was brought on by the fact that the company saw that high levels of capital spending were vital to the success of the firm and that high debt levels may put them at higher risk for defaulting.
The second method we used to analyze the firm’s value was the Comparable Companies Method. We used the historical figures as of 1990 and Goldmans Sach’s Projections. With an average of 22.
Hilton Worldwide carries out business through three segments: (1) management and franchise; (2) ownership; and (3) time-share. These business segments enable management to capitalize on strengths like brand recognition and economies of scale. The company focuses primarily on the management and franchise segment which consist of 3,918 hotels with 610,413 rooms. Managing the properties, rather than owning them, allows the company t...
In early 1928 the Dow Jones Average went from a low of 191 early in the year, to a high of 300 in December of 1928 and peaked at 381 in September of 1929. (1929…) It was anticipated that the increases in earnings and dividends would continue. (1929…) The price to earnings ratings rose from 10 to 12 to 20 and higher for the market’s favorite stocks. (1929…) Observers believed that stock market prices in the first 6 months of 1929 were high, while others saw them to be cheap. (1929…) On October 3rd, the Dow Jones Average began to drop, declining through the week of October 14th. (1929…)
This paper will discuss how a manager may decide a minimum acceptable rate of return will be for investors. The three models, dividend growth, CAPM, and APT will be analyzed as to each model’s ease of use and effectiveness and applied to General Mills, Inc. Additionally, some companies’ financial information will be compared using the CAPM model, to determine which company has the higher cost of equity and a conclusion will be made as to the effectiveness of these models.
The financial position of a company offers great insight on the performance of the company on short-term and long-term basis. This work argues that Facebook Inc. is a company with a subjective investment portfolio. The purpose of this paper is to use ratio analysis to determine the position of the Facebook as an investment destination. The first section explores two ratios and their implications to a potential investor. The second part evaluates whether Facebook is bankrupt. The succeeding section offers advice to potential investors. The work culminates by highlighting key points and making necessary recommendations.
Overlook Hotel, a nice and cozy place to stay for a vacation or a job, but, may drive you into madness. Where Jack Torrance ( Jack Nicholson) wife of Wendy Torrance (Shelley Duvall) and a writer takes a part time job to be the caretaker for the Overlook Hotel for a few months, where he can spend some time to himself and write. Wendy realizes over the months that Jack has changed in his attitude when he snapped at her when he was “working” on his writing. Wendy fears for her son, Danny ( Danny Lloyd) who has been experiencing odd occurrences with his imaginary friend “Tony”. As the Months go by, Jack starts to hallucinate events in the past of the man, Delbert Grady (Philip Stone) who killed his wife and two daughters and then shot himself
Strategic management is the set of managerial decision and action that determines the long-run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long range planning), strategy implementation, and evaluation and control (Hunger & Wheelen, 2011). In this report I will do research about the strategy of Marriott International, Inc. I will give advise on how Marriott can improve their strategy and I will come up with an advisory strategy.
The most common risk free interest rate is the short term US Treasury bond and is seen as a proxy. It is therefore valued as the default risk entity. They are seen as the most liquid bonds on the market (Buttonwood, 2014). It is considered easy to obtain and therefore most efforts are focused estimating the risk parameters of individual companies and risk premiums based on it (Damodaran, 2011). Risk free rate of return is critical for measuring present value. It recognizes that cash today is not the same as it is in the future. If invested we should expect that the time value of money will remain the same. These are key elements in the financial world and important indicators for investors.
Capital Asset Pricing Model (CAPM) is an ex ante concept, which is built on the portfolio theory established by Markowitz (Bhatnagar and Ramlogan 2012). It enhances the understanding of elements of asset prices, specifically the linear relationship between risk and expected return (Perold 2004). The direct correlation between risk and return is well defined by the security market line (SML), where market risk of an asset is associated with the return and risk of the market along with the risk free rate to estimate expected return on an asset (Watson and Head 1998 cited in Laubscher 2002).
a. 1. What sources of capital should be included when you estimate Harry Davis’s weighted average cost of capital (WACC)?