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# Marriott Corporation

CASE STUDY

• Lodging
• Contract services
• Restaurants
Financial Strategy

## IV. Repurchase undervalued share

Calculating the WACC
Calculation of WACC Mariott Lodging Contract Restaurant

WACC= (1-t)*rD(D/V)+rE*(E/V)

## WACC= 11,91% 9,23% 20,16% 14,13%

 The capital asset pricing model (CAPM) is a
model that describes the relationship between
systematic risk and expected return for assets,
particularly stocks.

##  It is an integral part of the weight average cost of

capital (WACC) as CAPM calculates the cost of
equity.
Calculation of Re Mariott Lodging Contract Restaurant

Re= Rf + β X ( Rf- Rm )

## Rf 0,0895 0,0895 0,0690 0,0690

β 1,6450 1,4230 2,7860 1,6460
Rf-Rm 0,0743 0,0743 0,0847 0,0847
Re 0,2117 0,1952 0,3050 0,2084

Note That: Rf-Rm is called as Risk Premium.As Lodging is long term then we use 7,43%.
8,47% for both restaurant and contracts because they are short term

**Note That: For Long-Term we used S&P 500 and Long-Term U.S Bond Returns In Exhibit 5.
**Note That: For Short-Term we used S&P 500 and Short-Term U.S Treasury Bill Returns In Exhibit 5.
 Unlevered beta (Asset Beta) is the beta of a
company without the impact of debt. It is
also known as the volatility of returns for a
company, without taking into account its
financial leverage.

##  Conversely, levered beta (or “equity beta”)

is a measurement that compares the
volatility of returns a company’s stock
against those of the broader market. In other
words, it’s a measure of risk.
ASSET
BETA

LEVERED
BETA
MARRIOTT LODGING CONTRACTS RESTAURANTS

##  The risk-free rate is customarily the yield on government bonds like

U.S. Treasuries.
Atvejo problemos
Calculation of Rd Mariott Lodging Contract Restaurant

## 0,1025 0,1005 0,0830 0,0870

Rd
 Marriott has to choose a risk value for each of the
business and then go for combining the Hurdle rates for
different business to form a portfolio and decide upon

##  Based on the WACCs stated for Marriott and its various

departments it’s obvious that the values are different

##  If Marriott has used only one hurdle rate then it would be

used the 11.91% rate which is for the entire company.
 As the risk in a business changes, the β value would
change thus changing the hurdle rate. The future
rates that the firm has used to predict the WACC are
themselves prone to change with time.

##  That is why WACC needs to be updated regularly to

make accurate decisions.
 We represent the cost of capital with risk, so therefore
the risk in the lodging department is lower when
compared with other departments that have a higher
WACC.

##  While Marriott used this rate, other projects would be

rejected exact Lodging because of its cost of capital
of 9.23% which is lower than Marriott’s WACC as
entire.

##  A higher rate effects in a negative Net Present Value

as well as a reduced cash flow.
 Fundamentals of Corporate Finance, Sixth Edition. Westerfield,
Jordan Ross
 https://corporatefinanceinstitute.com
 https://www.wikipedia.org
 http://www.investopedia.com/
 Corporate Finance, Pierre Vernimmen, Second Edition
 http://pages.stern.nyu.edu/~igiddy/articles/wacc_tutorial.pdf

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