I will pay for the following essay Marriott Corporation: The cost of capital. The essay is to be 2 pages with three to five sources, with in-text citations and a reference page.
The optimal capital structure should obviously be higher than the shareholders value. This helps in the control of default risks.
b) Another method is through incorporation of the hurdle rate in the compensation policy which in sense does not make sense since the rate does reflect risks of different activities and not managers performance.
Marriot Corporation measures the opportunity cost of the cost of capital for the investments using the weighted average cost of capital for similar investments that have the same risk. The WACC for the corporation is 11.89%.
I simply summed up premium according to company’s rating to a ten year US government interest rate. Kd = 8.72%+1.3% = 10.02%. a high company rating leads to a little default risk and the difference in the estimated debt cost is
The SBBI show was both arithmetic and geometric means data. Arithmetic mean is just a simple average rate of return yearly. The .Geometric mean is .less than the arithmetic mean. The arithmetic mean is preferred as investors use it in making expectations about the future returns on their investments.
The corporation will be using a single corporate hurdle which is 11.89% of the whole company. By using such rate, any project arising from lodging division will be shut down as the cost of capital will be 9.63%
I used a risk-free rate of 8.95% for the lodging since it the long-term division, and I assume it will get a more than 30 years economic life. Contract services and restaurant divisions have shorter economic life of about ten years thus why I used 8.72%. I used 7.43 % risk premium for lodging because it has long-term rates and 8.72% for restaurant and contract services because they have short-term rates.
The cost of debt for lodging was computed as 30-year risk free rate added to premium risk that equals to (8.95+1.10)% = 10.05% this before the tax on the cost of debt. In restaurant division, I used a
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