Cost of Working Capital for Mariott

Cost and Amount of Debt

Target capital Structure
debt rate premium above govt
30 year fixed US government rate
Cost of Debt

60.00%
1.30%
8.95%
10.25%

Tax Rate

34.00%
6.77%

After Tax cost of Debt

The Cost of Equity ( using CAPM)

Levered Equity Beta
target debt ratio
actual debt ratio
asset beta (unleverd beta)
calculating levered equity beta@ 60% debt

1.11
60%
41%
0.65
1.64

Risk free rate

8.95%

risk premium

7.43%
0.211147675

Cost of Equity

Weighted Average Cost of Capital

Weight of Equity
Weight of Debt

40%
60%

WACC

0.12504907

Given
(Assumed)

Given
Given
(as given in Exhibit 5)

Given

Bottom Up Beta ( Hotels)

Hotels

Equity Beta

Hilton Hotels Corporation

Holiday Corporation
La Quinta Motor Inns
Ramada Inns, INC

0.76
1.35
0.89
1.36

Weighted Average of Beta (A

Target Equity in Capital structure
Equity Beta
Cost of Debt
Debt Rate Premium Above Govt
30 year fixed US government rate
Cost of Debt for Hotels
Tax Rate
After Tax cost of Debt
Cost of Equity
Target Debt Ratio
Asset Beta
Equity Beta
Risk Free Rate
Risk Premium
Expected Return

0.4112791045
26%
1.5818427095

1.10%
8.95%
10.05%
34%
0.06633
74%
0.4112791045
1.5818427095
8.95%
7.43%
0.2070309133

WACC
Cost of Capital

0.1029122375

m Up Beta ( Hotels)
Market Laverage
Asset Beta (Unlevered)
14%
79%
69%
65%

(Weight wrt revenues )

(Given)

(Given)
(Assumed)

(Given)

(Given)

0.6536
0.2835
0.2759
0.476

Revenues
0.77
1.66
0.17
0.75

Bottom up Bet
Hotels
Church's Fried Chicken
Collins Foods International
Frisch's Restaurants
Luby's Cafeterias
McDonald's
Wendy's International

Weighted Average of Beta (Asset)

Target Equity in Capital structure
Equity Beta
Cost of Debt
Debt Rate Premium Above Govt
30 year fixed US government rate

Cost of Debt for Hotels

Tax Rate
After Tax cost of Debt
Cost of Equity
Target Debt Ratio
Asset Beta
Calculating Equity Beta @ 74% Debt
Risk Free Rate
Risk Premium

Expected Return
WACC
Cost of Capital

Bottom up Beta (Restaurant)

Equity Beta

Market Laverage

0.76
1.35
0.89
1.36
0.94
1.32

14%
79%
69%
65%
23%
21%

0.6471589882 (Weight wrt revenues )

58%
1.1157913589

(Given)

of Debt
1.80%
8.95%
0.1075
34%
0.07095

(Given)
(Assumed)

of Equity
42%
0.6471589882
1.1157913589
8.95%
7.43%
0.172403298

WACC
0.1297929128

(Given)

(Given)

nt)
Asset Beta (Unlevered)
0.6536
0.2835
0.2759
0.476
0.7238
1.0428

Revenues
0.77
1.66
0.17
0.75
4.89
1.05