1.
Marriott uses its cost of capital estimates to create a hurdle stray to effectively run operations. Marriott uses these estimates to operate its four financial strategies. These ar managing rather then owning hotel assets, investing in projects that increase shareowner value, optimizing the use of debt in the capital structure and repurchasing undervalued shares. If the company uses its boilersuit WACC it may have divisions accept projects with founders below their respective WACC which get out result in losses and vice versa.
2.
The Weighted second-rate Cost of Capital (WACC) is as average that reflects the expected return on all of a companies securities. For the WACC of Marriott as a social unit represents tall of Marriotts divisions as one company. Marriotts divisions are lodging, restaurant and squash services. To calculate the WACC a risk free rate was utilize of 8.72% reflecting the interest rate on 10 year establishment bonds. A risk premium of 7.76% or the average returns of arithmetical averages of all long term, high grade corporate bonds was apply for the WACC. To unlever the equity beta of 1.11 for Marriott the current debt percentage of 41% was employ as shown in their capital structure. The relevered beta was calculated use 60% debt from the target capital structure.
Cost of debt was calculated by multiplying the cost of fixed rate debt by fraction of debt at the fixed rate and adding it to the cost of floating rate debt compute by fraction of debt at the floating rate. The WACD for Marriott is 9.29%. The WACC was calculated by taking the WACD and multiplying it by debt percentage of capital, 1 minus the revenue rate and our expected return and adding it to cost of equity cipher by equity percentage of capital. The WACC is 8.4% for Marriott...
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