# Marriott Case

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Date Submitted: 10/17/2010 11:08 AM

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Calculate the riskless rate

- First, calculate the weighted average

The weighted average of each business line is based on its profit contribution to Marriott’s total profits. On page 2, the weighted average of lodging is 51%, that of contract services is 33% and that of restaurants is 16%.

Marriott’s lodging line is considered to be in the same market with Hilton, Holiday, La Quinta and Ramada. Similarly, its restaurants and contract services are in the same market as Church, Collins, Frisch, Luby, McDonald and Wendy. To be more conservative and accurate in the estimation of market volatility, Marriott should choose geometric average.

- Second, calculate b

To calculate b, assume that the project has the same risk and the same leverage as the firm overall.

b = S weighted average x the average of equity Beta of firms in the same business lines = 0.51[(0.88+1.46+0.38+0.95)/4] + (0.33+0.16)[(0.75+0.6+0.13+0.64+1.00+1.08)/6] = 0.813