Case Study Mariott

In the following section the restaurant division’s Wacc will be calculated.

The average assets beta is the simple average from the assets beta’s from McDonald’s, Wendy’s International and Collins Foods International. From Exhibit 3 the beta’s are:

-Mc. Donald’s: 1,00

-Wendy’s: 1,08

-Collins Foods International: 0,6

The average beta is then: (0,60 +1+ 1.08)/3 = 0,893.

The target leverage ratio is 42% (see Table A on page 4).

The risk free rate is 8,72% (see question 3 and Table B on page 4)

Rd is also 8,72% (see question 3)

The market risk premium is 7,92% (see Exhibit 5)

Now we can compute re with the CAPM.

CAPM: E (r)= rf + β(E(rM)-rf) = 0,0872 +(0,893) *0,0792 =0,1579. So re is 15,79%.

Now we have everything we must know in order to compute the restaurant division’s Wacc, which we will do next.

Wacc: E/E+D*re + D/E+D*rd(1-τ) = 0,58*0,1579 + 0,42*0,0872(1-0,35) = 0,1154. So the restaurant divison’s Wacc is 11,54%

Introduction:

In this case, the restaurant division of Marriott Corporation will be examined because the board of Marriott contemplates to spin off this division. For this research different financial instruments are used to highlight aspects of the restaurant division. After that is done, the decision of the board can be valuated well.

Analysis

Free cash Flows

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