Evaluating the price of capital
1 ) What is the weighted common cost of capital for Marriott Corporation?
1 (a) What risk-free rate and risk superior did you use to estimate the cost of equity? R (f), or risk free rate employed for calculating expense of equity was your Geometric Imply (GM) to get LT ALL OF US govt. connection returns (Exhibit 4). All of us used the entire GM of 1926-1987 of 4. 27%. This is because this is actually the period that Marriott has been around operation and would be a very good reflection of the time frame, and also the fact that it will require care of annually fluctuations between the risk free rates. Risk-premium employed was S& P five-hundred composite inventory index results, which were taken as the market returning, less the risk free level. In this case, we took the market return over the same time period (1926-87) as we got for Risk free rate. For this specific purpose, we took the GM in the spread between S& G 500 composite returns and bond prices. This risk premium was given by 5. 63% (Exhibit 5) one particular (b) Just how did you measure Marriott's cost of debts? We scored cost of debt, by adding the financial debt rate high quality over ALL OF US government interest rates. Since вЂLodging' segment a new higher useful life, we used 30-year US authorities interest rates below (8. 95%), and applied 10-year interest levels for вЂContract services' and вЂRestaurants' (8. 72%). As, no particular division of debt was given between these 3 segments, we used an easy average. Average US govt. interest rate= (8. 95% + almost eight. 72% & 8. 72%) / several = eight. 8% Put debt rate premium for this rate= 8. 8% +1. 3% sama dengan 10. 1%
one particular (c) Performed you use arithmetic or geometric averages to measure rates of go back? Why? We used the Geometric Imply (GM), as it is a good assess, since it is more likely to do away with extreme values than AM.
2 . What kinds of investment might you value applying Marriott's WACC? If Marriott used an individual corporate difficulty for analyzing investment chances in each line of business, what would happen to...