Submitted by: Submitted by gummy
Views: 1170
Words: 458
Pages: 2
Category: Business and Industry
Date Submitted: 10/16/2012 04:14 AM
Marriott Corporation Solutions
Step #1: UNLEVER BETA
Levered equity beta = 1.11
Actual debt/value = 41%
b MA = Unlevered asset beta = (59%) (1.11) = 0.655
[pic]
Step #2: LEVER BETA
Unlevered asset beta = 0.655
Target debt/value = 60%
b ME = Levered equity beta = .655 / (1-.60) = 1.64
[pic]
Step #3: EQUITY COSTS
RE = riskless rate [RF ]+ Beta [b ] x [risk premium]
= 8.95 + 1.64 x 7.43%
= 21.135%
[pic]
Step #4: DEBT RATE
RD = 8.95% + 1.30%
= 10.25%
[pic]
Step #5: WACC
WACC = (1 - t ) (D/V) rD + (E/V) rE
= (1- 0.44%) x (60%) x (10.25%) + (40%) x (21.135%)
= 11.90%
[pic]
Asset Betas for Lodging
| |Market |Levered Equity |Unlevered |Adj.cEquity |Adj.dAssetBe|1987 Rev. |
| |ValueaLeverag|Beta |AssetbBeta |Beta |ta | |
| |e | | | | | |
|Hilton Hotels |0.14 |0.88 |0.76 |0.92 |0.79 |0.77 |
|Holiday Corp. |0.78 |1.46 |0.32 |1.30 |0.29 |1.66 |
|La Quinta Motor Inns |0.69 |0.38 |0.12 |0.60 |0.19 |0.17 |
|Ramada Inns |0.64 |0.95 |0.34 |0.97 |0.35 |0.75 |
Average Unlevered Asset Beta: 0.38
Weighted average (by sales) asset beta: 0.42
Average Adjusted asset beta: 0.40
Weighted average (by sales) adjusted asset beta: 0.41
NOTES:
aMarket value leverage is the book value of debt divided by the sum of the book value of debt and the market value of equity
bAsset beta = equity beta x (1 - market value leverage)
cAdjusted equity beta = 0.35 + 0.65 (equity...