MARRIOTT Corporation WACC calculations 1) What is the weighted average cost of capital (WACC) for Marriott Corporation, under actual capital structure? Hints for question 1: a) Firm has no preferred stocks, so WACC-ward-T) + ws, Assume tax-40% b) Note that Ws- 1-Wd. "Wd" is also called "L", leverage. c) Actual L (in 1987)-(LT debt / (LT debt + Market value of equity)) d) (ra) Cost of debt is calculated as "risk free rate (government bond return)" plus "Debt Rate Premium above Government." Long maturity bonds are safer choices for risk free rate. For risk free rate choose the longest maturity bonds (see Table B) Calculate (rs) with CAPM. Beta of Marriott is given in the case. This is a levered beta. Proxy (assume) market risk premium is "Spread between S&P 500 Composite Returns and Long-Term U.S Government Bond Returns". Remember the long-time period and arithmetic average are better. Compute the WACC using: WACC = wad(1-T) + was. e) f) MARRIOTT Corporation WACC calculations 1) What is the weighted average cost of capital (WACC) for Marriott Corporation, under actual capital structure? Hints for question 1: a) Firm has no preferred stocks, so WACC-ward-T) + ws, Assume tax-40% b) Note that Ws- 1-Wd. "Wd" is also called "L", leverage. c) Actual L (in 1987)-(LT debt / (LT debt + Market value of equity)) d) (ra) Cost of debt is calculated as "risk free rate (government bond return)" plus "Debt Rate Premium above Government." Long maturity bonds are safer choices for risk free rate. For risk free rate choose the longest maturity bonds (see Table B) Calculate (rs) with CAPM. Beta of Marriott is given in the case. This is a levered beta. Proxy (assume) market risk premium is "Spread between S&P 500 Composite Returns and Long-Term U.S Government Bond Returns". Remember the long-time period and arithmetic average are better. Compute the WACC using: WACC = wad(1-T) + was. e) f)