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Case!Study:!Marriott!Corporation!

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The!Cost!of!Capital!

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Teresa!Cortez!

Keith!Gemmell!

Brandon!Papsidero!

Robin!Reschke!

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October!28,!2013!

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Table!of!Contents!

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1.! Are the four components of Marriott’s financial strategy consistent with its growth

objective? ...................................................................................................................... 1!

2.! How does Marriott use its estimate of its cost of capital? Does this make sense? ...... 3!

3.! What is the weighted average cost of capital for Marriott Corporation? ..................... 4!

4.! What type of investments would you value using Marriott’s WACC? ........................ 6!

5.! If Marriott used a single corporate hurdle rate for evaluating investment opportunities

in each of its lines of business, what would happen to the company over time? ......... 7!

6.! What is the cost of capital for the lodging and restaurant divisions of Marriott? ........ 8!

7.! What is the cost of capital for Marriott’s contract services division? How can you

estimate its equity costs without publicly traded comparable companies? ................ 11!

APPENDIX I – Math Utilized to Derive WACC for Marriott .......................................... 13!

APPENDIX II – Math Utilized to Derive WACC for Divisions ...................................... 16!

BA!626!Financial!Decision!Making!

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!Are!the!four!components!of!Marriott’s!financial!strategy!consistent!with!

its!growth!objective?!

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The! four! components! of! Marriott’s! financial! strategy! are! to! manage! rather!

than! own! hotel! assets,! to! invest! in! projects! that! increase! shareholder! value,! to!

optimize! the! use! of! debt! in! the! capital! structure,! and! to! repurchase! undervalued!

shares!when!necessary.!

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Marriott’s! growth! objective! is! to! become! the! preferred! employer! and!...