Assume that there are no corporate taxes (i.e. ? = 0). You may also assume that debt is riskless (i.e.,?_D=0). All info and exhibits are included. Please provide steps how to get each item. . ie Bu, Bd, CAPM, WACC, etc. Equity beta 1.11 is provided 1.11(pg 5). If I can get help/steps it would be appreciated.

Question 1.Compute the asset beta and cost of capital for Marriott Corporation as a whole. Be sure to justify your choice of risk-free rate and a market risk premium.

Bonus

Question 2.Using the information on comparable hotel and restaurant companies from Exhibit 3, compute asset betas and costs of capital for the lodging division and the restaurant division. Be sure to justify your choice of risk-free rate, market risk premium, and comparables.

Question 3.Use your computations from Questions 1 and 2 to compute an asset beta and cost of capital for Marriott's contract services division. (Hint: The case notes on p. 5 that "A company's beta, therefore, was a weighted average of the betas of its different lines of business." Use this observation as a starting point for your calculation.)

Marriott Corporation: The Cost of Capital (Abridged) In April 1988, Dan Cohrs, vice president of project finance at the Marriott Corporation, was preparing his annual recommendations for the hurdle rates at each of the firm's three divisions. Investment projects at Marriott were selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division. In 1987, Marriott's sales grew by 24% and its return on equity (ROE) stood at 22%. Sales and earnings per share had doubled over the previous four years, and the operating strategy was aimed at continuing this trend. Marriott's 1987 annual report stated that: We intend to remain a premier growth company. This means aggressively developing appropriate opportunities within our chosen lines of business-lodging, contract services, and related businesses. In each of these areas, our goal is to be the preferred employer, the preferred provider, and the most profitable company. Cohrs recognized that the divisional hurdle rates at Marriott would have a significant impact on the firm's financial and operating strategies. As a rule of thumb, increasing the hurdle rate by 1% (for example, from 12% to 12.12%), decreased the present value of project inflows by 1%. Because costs remained roughly fixed, these changes in the value of inflows translated into changes in the net present value of projects. Figure A shows the substantial impact of hurdle rates on the anticipated net present value of projects. If hurdle rates were to increase, Marriott's growth would be reduced as once profitable projects no longer met the hurdle rates. Conversely, if hurdle rates decreased, Marriott's growth would accelerate. 10% 50% 20%- 1066. 0% -10%- -20%- Figure A: Source: hurdle rate 10% Typical Hotel Profit and Hurdle Rates Casewriter estimates. Profit rate for a hotel is its net present value divided by its cost.