Marriott
...of its three business divisions: lodging, restaurants, and contract services. Before Marriott can invest in any particular project, they have to calculate hurdle rates for each division to use as a benchmark to check the viability and profitability of each project. To find these rates, we will use the Capital Asset Pricing Model (CAPM) and the Weighted Average Cost of Capital (WACC). These methods will incorporate past financial history, current financial planning, and industry and market outlook to provide us with the answers we need.
After careful examination of the financial data available, we are able to calculate the CAPM and WACC for not only the Marriott Corporation but also for each division. Our findings give us an overall CAPM of 14.46% and a WACC of 11.19%. For the Lodging division, our CAPM is 22.50% and WACC of 10.67%. Restaurant division has a CAPM of 20.10% and WACC of 14.53%. Contract Services division CAPM is 13.63% and WACC of 10.34%.
To keep within the four key elements of Marriott financial strategy, we recommend that Marriott only invest in projects where the rate of return is higher than the appropriate weighted average cost of capital. In doing this, they will lower their risks, maximize returns, increase shareholder value, and optimize their use of debt. A further breakdown of this analysis can be found in the following report.
Company Background and Information
The Marriott Corporation was started in 1927 by J. Willard Marriott and over the last 60 years it has grown into a multi-billion company with holdings in Hotels, Restaurants, and Contract Services. Last year Marriott netted over 6.5 billion in sales and 223 million in net income, this gives them the valuable resources needed expand and grow. Over the years, Marriott has developed financial strategies to help them maximize their growth potential while minimizing...
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