Restaurant division was measured by with the rate for a one-year United States The repurchase of under capitalized shares on the industry is consistent from the firm's financial strategy simply because withdrawing these shares within the marketplace reduces the provide of shares from the organization out there for trading and, thus, has a strong potential to bring about the industry price from the shares outstanding to increase; thereby leading to an enhance in the marketplace valuation from the company.
Marriott estimated its price of capital through the software program of a weighting formula that included the marketplace values of debt and equity and the benefits from the firm's federal tax rate on these measures. This process made a weighted average opportunity cost of capital to your firm. This firm-level price of capital was utilized in calculations to assess the desirability of repurchasing under values shares over a market. Additionally, Marriott calculated a separate weighted cost of capital for each from the firm's operating divisions.
The weighted prices of capital for each division had been utilized to assess capacity investments inside the separate divisions. Additionally, these divisional weighted prices of capital had been employed by the organization to determine the fraction of total divisional debt that ought to be at floating rate and at fixed rates.
The process for the determination and use of costs of capital by the firm make sense simply because the different lines of business where the company participates
b. The cost of debt to your lodging division was measured by while using rate in your 30-year United States government security plus a premium cost of 10 percent more than the federal government rate. The price of debt for your government security and also a premium cost of 80 percent more than the government rate. Debt price ought to differ across divisions mainly because the variation in returns across divisions mean that higher premiums must be paid to induce investors.
The weighted average price of capital for your lodging division is 11.6 percent. The weighted average price of capital to your restaurant division is 13.3 percent.
a. The risk-free rate employed from the determination of the price of equity was 8.72 percent. The risk premium employed to calculate the cost of equity was 5.25.
c. Arithmetic averages have been applied to measure rates of return.
The weighted average cost of capital for ones Marriott Company is 11.85 percent. Long-term debt plus equity from Exhibit One (p. 583, Case) was utilized as the value from the firm.
are characterized by substantially various capital needs, capital costs, and returns on investment. Therefore, the use of the single cost of capital to your several operating divisions would tend to distort investment decisions.
Ordercustompaper.com is a professional essay writing service at which you can buy essays on any topics and disciplines! All custom essays are written by professional writers!
No comments:
Post a Comment