# case1 - 1 WACC for Marriott Corporation Wacc=(1-t)rd(D/V...

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1. WACC for Marriott Corporation Wacc= (1-t)r d (D/V)+r e (E/V) 1)t= corporate tax rate 2)r d =pretax cost of debt 3)D=market value of debt 4)V= value of the firm 5)R e =after tax cost of equity 6)E=market value of Equity For 1), Corporate tax rate can calculate income tax in 1987 divided by taxable income in 1987. 175.9/398.9=0.44 44% For 2) the cost of debt for Marriott is equal to Marriott’s debt rate premium above government plus 30year government interest rate= 1.30%+8.95=10.25% For 3 and 4) D/V Marriott’s market leverage is 41%, and its equity beta is 1.11. Leverage =D/(D+E) = D/V=0.41 Debt percentage in capital 0.6 For 5) R e =risk less rate + equity beta(market - risk free rate) 8.95%+1.11(12.01%-8.95%)=.123466 12.34% 8.95%+1.11(7.43)=17.19 17.34% For 6) D/V=0.41 D=0.41V E=V-D E=V-0.41V E=0.59V D/V=0.41V/0.59V =0.69 E/V 1-debt percentage of capital 0.4 WACC=(1-0.44)*0.1025*(0.6)+0.1234*(0.4)=0.0838 8.38% WACC=(1-0.44)*0.1025*(0.6)+0.1734*(0.4)=0.1038 10.38% 2. WACC for Lodging division

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## This note was uploaded on 10/20/2011 for the course FIN 500 taught by Professor Yi during the Spring '10 term at CSU Dominguez Hills.

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case1 - 1 WACC for Marriott Corporation Wacc=(1-t)rd(D/V...

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