Case 1 -- Marriott [Questions]

Case 1 -- Marriott [Questions] - Questions&HintsCaseStudy#1...

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Questions & Hints – Case Study #1 Marriott Cost of Capital, HBS #289 047 FNCE 203, Spring 2011 Professor Opp In this case, you will use the CAPM model to compute the cost of capital for a whole company and for each of its divisions. In your analysis, you can make the following assumptions: You may use 34% as the corporate tax rate (after the 1986 Tax Reform Act). The equity beta values in Exhibit 3 are based on the capital structure in place in 1987. Credit spread (the premium for Marriott debt above the current government rates) already reflects any adjustment for the presence of floating rate debt (i.e., don’t worry about the presence of floating rate debt in your report). Your report should clearly show the cost of capital that you would recommend for Marriott as a whole, and for each of its three divisions. To properly use WACC as a measure for the overall cost of capital, you need to consider the following issues.
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