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Category: Business and Industry
Date Submitted: 09/26/2011 10:13 AM
Marriott Homework Solutions
Current , which is not optimal (see Table A). Must unleverage to get the asset .
beta, then leverage up using
Note Current 30 year rate from Table B, or 8.95, then add 1.30. Maturity should match the life of Marriott assets, which > 30 years. better. t = 44%, or most recent average tax rate
used the
e projects with the same asset beta (.80) as Marriott and financed using the same percentage of debt and equity.
1
Lodging WACC
Estimating Lodging Asset Beta: Assume Equal Weights for Pure Plays
Pure Plays Hilton Holiday Inn LaQuinta Ramada Equity beta 0.76 1.35 0.89 1.36 14% 79% 69% 65% t 44% 44% 44% 44% *
0.70 0.43 0.39 0.60 0.54
Mean:
*Unleveraged using the formula
mal
from Table A.
= *8.95 + 1.4 (1.93) = 19.35% *8.95 (Table B) + 1.1 (Table A) = 10.05
Note * 8.95 % because the lodging life span is 30 years.
2
Restaurant WACC
Estimating Restaurant Asset Beta : Equal Weights for Pure Plays
Pure Plays Collins Equity beta 1.45 1.45 0.57 0.76 0.94 1.32 4% 10% 6% 1% 23% 21%
t 44% 44% 44% 44% 44% 44%
*
1.42 1.36 0.55 0.76 0.80 1.15 1.01
Mean:
*Unleveraged using
Now leverage up using restaurants optimal
(Table A)
*8.72 + 1.42 (7.43) = 19.3% *8.72 (Table B) + 1.8 (Table A) = 10.52
Note
*Used 10 year rate for
3
Contract Services WACC
Can solve for asset beta algebraically using: ...