El Caso Marriot Hotel

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Pages: 9

Category: Business and Industry

Date Submitted: 04/06/2011 02:03 PM

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Attached is the case study, some of the requirements and the calculations that I did. I am really uncertain how to solve the problem. I believe the problem in the case study is the following:

The company uses divisional hurdle rates in evaluating projects which could have a significant impact on the firm's financial and operating strategies. Increasing the hurdle rate decreases present value of a project. Since the project costs are fixed, changes in the value of inflows means changes in the net present value of the project. Therefore, if hurdle rates were to increase, Marriott's growth would decline as profitable projects no longer met the hurdle rates. On the other hand, if hurdle rates decreased, Marriott's growth would accelerate.

I determined the WACC for Marriott Corporation and its divisions as I believe that is what I am supposed to do. To me, that does not prove anything except that they are different. How do I apply these to solve the problem? What are possible solutions?

Attached is the case study, some of the requirements and the calculations that I did. I am really uncertain how to solve the problem. I believe the problem in the case study is the following:

The company uses divisional hurdle rates in evaluating projects which could have a significant impact on the firm's financial and operating strategies. Increasing the hurdle rate decreases present value of a project. Since the project costs are fixed, changes in the value of inflows means changes in the net present value of the project. Therefore, if hurdle rates were to increase, Marriott's growth would decline as profitable projects no longer met the hurdle rates. On the other hand, if hurdle rates decreased, Marriott's growth would accelerate.

I determined the WACC for Marriott Corporation and its divisions as I believe that is what I am supposed to do. To me, that does not prove anything except that they are different. How do I apply these to solve the problem? What are...