8/18/2019 Marriott Case Assignment Sheet

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Marriott Case Assignment

Notes:1. This is a group assignment. Groups are permitted to seek guidance from others in

understanding the concepts underlying this assignment, but each group must work

independently in the actual preparation of spreadsheets and answers.

2. This assignment is to be completed using Excel. Begin ith the Excel template file for

the case. !ut your calculations"formulas in the orksheet labeled #$nsers.% &ummari'eyour results on the orksheet labeled #&ummary.% (n the summary, use formulas to

reference the ansers in the #$nsers% orksheet. $ll your ork must be in one single

file but you may use multiple orksheets if needed. Be sure to label your orksheets.

You must submit your Excel files on Blackboard by 2!! p"m" on the due date"

). You must also turn in a hard copy report of this assignment by the beginning of

class on the due date" $ttach a co*er page to the front of your report. The co*er page is

no a*ailable on Blackboard. Each group member must sign the co#er page toindicate he$she contributed to the case" The format of your spreadsheet is up to you but

must be summari'ed in the summary table in the Excel template. +ote: -our summarytable should reference the ansers calculated elsehere in the spreadsheet. -our hard

copy should include only the summary table plus essay ansers to /uestions 0 03.

Assignment %for all groups&

The goal of the case is to estimate the cost of capital for 4arriott 5orporation and for each of its

di*isions. The case is set in $pril, 1677, and the cost of capital estimates are to be used by thecompany in e*aluating future pro8ects. 9n particular, each di*isions cost of capital estimate is to

 be used as the hurdle rate in e*aluating in*estment opportunities for that di*ision. The stepslisted belo ill guide you in estimating the cost of capital.

1. ;etermine the eighted a*erage cost of capital for 4arriott 5orporation as a hole.

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). se dollar *alues of identifiable assets, pro*ided inExhibit 2, for eighting the di*isions. This unle*ered beta can then be rele*ered, using

the target le*erage ratio of the contract ser*ices di*ision +Table $. >se this rele*erede/uity beta in determining the cost of e/uity for the di*ision. +ote: &tep 0 ill need to

 be done 2 times, once using the estimates from step 02 and once using the estimates from

step 0).

3. &ummari'e your results in the summary table pro*ided on Blackboard. 5onsider that the

calculated @$55s are to be used by the company as hurdle rates for e*aluating

in*estment opportunities. 5onsider also the types of business in each of the threedi*isions. @rite an essay discussing differences you obser*e among the @$55s and

hether these make sense in relation to the business of the di*isions in 1677. ext,

considering more recent economic conditions +the past se*eral years, do you think therelati*e @$55s of these di*isions +if they still existed together as 4arriott 5orporation

ould be different if the calculations ere repeated todayA Explain hy or hy not.

(ther information:

a. @hen calculating the cost of debt, for di*isions or for the company as a hole, use the

debt premiums listed in Table $ of the case. .&. go*ernment bond returns% hen deciding on the market risk 

 premium. This is the same risk premium you ould use if you choose to use the )?year

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go*ernment rate as the risk?free rate. The calculated cost of capital can *ary greatly

depending on hich market data is used. Think carefully about your choices

e. Be careful hen deciding hich capital structure *alue to use hen unle*ering 4arriotts

 beta because there are ) different debt"*alue ratios for 167= listed in the case: 7.7D

+Exhibit 1, 6D +in the text of the caseH same as Exhibit 1 but *alue is rounded, and1D +Exhibit ).

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@$55 of 4arriott. Co does this @$55 compare to the @$55 calculated using the

1677 betaA 5an you explain any difference you findA +ote: 5alculating the @$55

using financial data from the setting of the case is not a realistic estimate of 4arriotts@$55 today. -ou are simply trying to see the difference in the @$55 hen the beta is

changed.

3. 5onsider current economic conditions.