Merriot Case

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Category: Business and Industry

Date Submitted: 11/28/2012 10:34 AM

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1. I believe that the four strategies were consistent with Marriott’s growth objective. They wanted to remain a primer growth company in the areas of lodging, contract services, and related services. They also stated that their goal was to be the preferred employer, provider, and the most profitable company in their areas of focus.

By managing rather than owning they are able to control the operations for that hotel which provides them cash flow but does not lockup their cash in that asset. This allows them to continue the process over and over, which gives them the ability to grow rapidly. Another strategy Marriott focused on was investing in projects that increased shareholder value. By doing this the value of their shares would increase as would demand because investors are always looking for a profitable company that is growing and have a good return on equity.

Marriott also focused on optimizing the use of debt in its capital structure which made it so they could leverage the amount of assets they had and earn more profits with debt and equity compared to only using their equity. By doing this the company had more funds available for more projects that would earn a high rate of return. Finally the company focused buying back shares when they seemed to be undervalued. The company believes that by doing this they were getting a better return on their cash flow and debt instead of real estate investments. This enabled them to retain a high stock price and made it so they would be comparable to other companies in their business sector.

2. Marriott estimated the opportunity cost of capital on similar projects by using the Weighted Average Cost of Capital method:

WACC = (1-tax rate) Rate of debt (Debt/Value of Firm) + After tax cost of equity (Equity/Value)

This calculation does make sense for Marriott to use because it takes into account the average cost of funds from all sources in their company and this is the best...