Marriott Corporation: The Cost
of Capital
FINA 3301 Section 2
Spring 2013
Nicholas Lara
Charles Jung
Juan Villaamil
Marriott Corporation: The Cost of Capital
The four components of Marriotts financial strategy are to manage rather than own hotel
assets, i
Valuing Capital Investment
Projects
FINA 3301 Section 2
Spring 2013
Nicholas Lara
Charles Jung
Juan Villaamil
Valuing Capital Investment Projects
1) Growth Enterprises Inc.
1) A. Refer to Exhibit 1
B. The Payback rule measures the amount of time required
Atlantic Corporation Case
Study
FINA 3301 Section 2
Spring 2013
Nicholas Lara
Charles Jung
Juan Villaamil
Atlantic Corporation
1)
Assuming that the price of linerboard per ton reflects the current estate of the industry,
we are optimistic about that the o
Cash flow estimation
1. Ford Motor Company is considering launching a new line of hybrid diesel-electric SUVs. The
heavy advertising expenses associated with the new SUV launch would generate operating losses
of $35 million next year. Without the new SUV,
Chapter 2:
Standard deviation: how far above or below the expected value the actual value is like to be
Chapter 6:
Operating current asset: the short-term assets normally used in a companys operating
activities. cash, inventory, and account R/C, except s
Chapter 2:
Standard deviation: how far above or below the expected value the actual value is like to be
Chapter 6:
Operating current asset: the short-term assets normally used in a companys operating
activities. cash, inventory, and account R/C, except sh
Chapter 9:
The steps in financial forecasting: (1) forecast sales, (2) project the assets needed to support
sales, (3) project internally generated funds, (4) project outside funds needed, (5) decide how to
raise funds, and (6) see effects of plan on rati
Chapter 12
Capital budgeting is the whole process of analyzing projects and deciding which one to accept
and thus include in the capital budget.
Reasons to invest: replacement, expansion (same market), cost reduction/ efficiency,
development (new marketpl
<Previous test review>
>Factors that will increase AFN: Increase dividend payout ratio; firms forecasted sales r
unexpectedly increased; inventory turnover decrease, no effect on sales forecast.
>Nike bond $95.6 means the market rate of interest has incre
Chapter 11:
CAPM(capital asset pricing model): Rs=Rrf+Bi(RPm)
CAPM: the cost of common equity=risk-free rate+beta coefficient*(market risk premium)
Beta,bi=(stock standard deviation/market standard deviation)/correlation
It measures how much risk the sto
Chapter 7:
Current ratio: current assets/current liabilities
Quick ratio:(current assets-inventories)/current liabilities
Asset management ratio measure how effectively a firm is managing its assets
Inventory Turnover: CGS/Ending inventory
Total assets tu
M&A Valuation
Players Investment bankers/CEO/Board/Risk Arb./Labor Unions
Buyers Perspective The Process Strategy, Formulation, Identification (screening of
candidates), Valuation, Negotiation, Purchase, Implementation
Valuation Disciplined means for huma
Market Efficiency
- The efficient market hypothesis assumes that all relevent and publicly available information about a firm is quick
Ravenscraft (1)
There is no value created through M&A activity
2 out 5 are outright disasters, 2
Ravescraft (2)
- Aquiri
Term
Tax
Cost of Debt
(Before Tax)
Symbol
t
Definition
Calculation
0.00%
Kd
Yield to maturity on
company's bond
0.00%
Cost of Debt (After
Tax)
Kd
Kd*(1-T)
Cost of Equity
Ke or Ri
Using CAPM = Rf + (Rm Rf)*b
0.00%
0.00%
Expected Return to equity
investors
What is a Poison Pill
A legal contract giving target
company shareholders certain
rights under specific
circumstances
1
Types of Pills (1)
Flip Over
Gives target shareholders the right
to buy shares in the acquiring
company at a discount (usually 1/2
pr
Index to Handouts (revised July 2010)
This wookbook contains the following exhibits
Valuation Models
Discreet CF's
Constant CF's
Constant Growth CF's
Mixed, i.e. discreet CF's + constant growth terminal value
Cost of Capital
Kd, Cost of Debt
Ke, Cost of E
Index to Worksheets in this File
1 Steps in Valuation
2 Valuation Models
Discreet CF's, Constant, Constant growth, super growth + constant)
Contains practice problems
3 Free Cash Flow
4 Cost of Capital
Cost of Debt, Cost of Equity, and WACC
5 Terminal Val
A - Arbitrage Analysis
Assumptions
Margin
Rate
Comments
Libor
Prime
Transaction Costs
40%
9%
7%
2%
0.30% Long or short
Assumptions
Initial Transaction 4/5/2001
Complete Transaction 6/5/2001
% margin
% interest
Shares
# buy TC
Exchange Ratio
# short AC
AC
CASH IS KING!
Suggested Topics to Review for Final Exam
Assumptions in financial forecasting, modeling, and valuation
Why forecasts Fail Taking forecasting with a grain of salt
o Accurate forecasts are not possible
o Extrapolating the past to predict the
Chapter 10:
Agency conflicts: a conflict of interest whenever owners authorize someone else to act on
their behalf as their agents.
The primary agency relationships are: 1) stockholders and creditors, 2) inside
owner/managers and outside owners 3) outside
Time Value of Money
Professor Gu
The Outline
Explain the basic concepts
Discuss the applications
- single cash flow
- annuity
- perpetuity
- uneven cash flows
Interest Rates (Nominal vs Effective)
Time Value of Money
In finance, we can only value the
Introduction
Prof. Tiantian Gu
Equity Premium and Risk
Equity Premium and Risk
Equity Premium and Risk
Equity Premium and Risk
Stock Real
Bond Real
Stock - Bond
GDP
Consumption
E (R)
8.6
1.3
7.3
3.2
3.3
(R)
17.6
2.6
18.1
2.6
2.1
Correlation
0.99
-0.03
1
Introduction to Corporate Finance
Portfolio decisions of investors
o Investors give up cash today to consume more tomorrow.
o They invest in stocks, bonds, etc. through financial markets.
o Investors decide what fractions of their portfolio should be all
Chapter 2: Time Value of Money, Annuities and Perpetuities
Future Value = FV = PV(1+r)n
o n = number of periods
o r = rate of return per period
Present Value = PV = FV/(1+r)n
Money has changing value of over time. A dollar today is more valuable than a do