Documentos de Académico
Documentos de Profesional
Documentos de Cultura
@ Lines of business:
D Lodging
D Contract services
D Restaurants
50%
40%
30%
0%
1 2 3 4 5 6
-10%
-20%
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¢
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Con͛t (1)
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Ñ
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has been stable, ranged from 0Ñ04 - 0Ñ05 for the nine-
year period before 1987Ñ hen the ratio diminished to 0Ñ34 in 1987, it
happened because in 1986 and 1987 Marriott develop many hotel
properties, and it shows in the increase amount of Capital and AssetsÑ
And also subtracted by the increase of interest paymentÑ
2Ñ Share͛s
in the year of 1978 to 1987 keep increasing
significantly, except for 1987 the increasing was only $ 0,25, as an effect
from repurchasing the shares in 1986Ñ
Con͛t (2)
@ m
Ñ
1Ñ enerally, it can lead to a lower growth, because company uses it͛s free
funds to buy back shares and therefore will underinvest in NPV-positive
projectsÑ
2Ñ Some cause why shares͛s price are going down, it may a result of a very
bad investment decisions, that led to lossesÑ In this case, buybacks will
lead to overpricing of Marriot͛s sharesÑ This strategy implies that Marriot
is smarter than the market isÑ Buybacks, if shares are temporary
undervalued, then it might be a cheap way of paying dividends to
shareholders Ñ In the long run, this technique is simply impossible to do
it continuouslyÑ
@ Marriott measured the opportunity cost of capital for investments of
similar risk using the weighted average cost of capital (ACC) approach to
determine the cost of capital for the corporation as a whole and for each
division:
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%
WACC 4.93% 5.00%
10Ñ00%
9Ñ00%
8Ñ00%
7Ñ00%
6Ñ00%
5Ñ00% ACC
4Ñ00%
3Ñ00%
2Ñ00%
1Ñ00%
0Ñ00%
Marriott ( hole ) Lodging Contract Restaurants
!
@ The hurdle rate should be 8,67%, if the debt composition not more
than 60:40 (debt:equity)Ñ Since ACC Lodging is more than 8,67% it
means that the Lodging Division has higher ACC, because of
higher equity financing in some of its divisions and lower debt
financing
@ Higher ACC of lodging indicates that company should be
careful enough in investing in lodging division as it demands
for high required rate of return compared to those of
restaurant and contract servicesÑ
@ For hurdle rates calculation purposes, Marriott has determined a
beta of 1Ñ11 for the hole companyÑ According to calculations shown
in exhibit 4, pondering each division in accordance to its respective
sales, Marriot should take in account each betas when evaluating
each division͛s projects, in addition to considering the global betaÑ
!
@ The main use of the hurdle rates was the investment decision
and this is reasonableÑ Using different rates for different
division is also goodÑ The idea of compensation based on
hurdle rate is far from being justÑ And the rule of thumb may
prove to be wrong in many cases, hope they don͛t use it
where it is crucialÑ
*