Cost of Capital for Marriott Essay -- GCSE Business Marketing Coursewo

apostrophize of Capital for Marriott Mentioned Tables Not IncludedObjective 1) rate the divisional and the company constitute of capital and explain the calculation. 2) Evaluate Marriotts intention of company cost-of-capital rate for the individual divisions.Cost of Capital for Lodging air division can be expressed as CC = We*Ce + Wd*Cd. For the weights of debt and equity (We and Wd), the 1988 target-schedule rates of debt-to-assets and debt-to-equity were used as the only measures available in the case. Cost of Equity (Ce) was calculated based on the CAPM formula. 30-year T-bond was used as a long-term risk-free security to get the risk-free rate, since Marriott used the cost of long-term debt for its lodging cost-of-capital calculations. The market subsidy 8.47 was the arithmetic-average spread between the S&P 500 re figure outs and the short-term US T-bills between 1926-1987. This market premium is consistent with the current academic suggestions and it was used i n all calculations of this exercise.The leveraged beta (Bl) of the lodging division, needed for CAPM, was derived from the following equation Bl=Bu(1+D/E), where Bu is the unleveraged Beta. Bu was in turn derived from the weighted-average of the Bus of the lodging businesses given in the case. The weighted-average method rather than a unproblematic arithmetic-average method was used to allow a more accurate Bu of the boilers suit industry.Cost of Debt (Cd) is defined as (risk-free rate)+the premium (Tab...