Marriott Cost of Capital Essay

Our objective was to find the hurdle rates for Marriotts three divisions and for the firm as a whole. Marriott should find the hurdle rates for its divisions separately because its divisions operate in separate industries and therefore face different business risks. Marriotts vice president says that change magnitude the hurdle rate by 1% would decrease the present value of project inflows by 1%. Since finding appropriate hurdle rates is particular to accepting or rejecting projects, Marriott should be precise by calculating and using division-specific rates on division-specific projects. We used the WACC method so that our hurdle rates would take a hop appropriate cost of debt and cost of equity, as explained in our subsequent analysis. We found Marriotts hurdle rates 8.646% for hotels, 10.94% for restaurants, 11.094% for contracts, and 9.688% for the entire company.Marriott should use the division-specific hurdle rates when evaluating division-specific projects. victimization th e overall WACC to evaluate a project in the restaurant industry, for example, could cause Marriott to incorrectly accept a project, which would destroy wealth. Our analysis also led us to evaluate Marriotts four financial growth objectives. First, we found that by managing instead of owning hotel assets, Marriott was able to hedge its risks in the currently volatile economy. Second, we were concerned that Marriotts strategy of maximizing shareholder wealth by treating its projects like similar little boxes instead of using division-specific hurdle rates would decrease shareholder value.