# Worksheet 3

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Name 3_%!80\ \ Cx QN\.\V\ Worksheet #3 Marriott Corporation: The Cost of Capital (Abridged), HBS 9-289-047 ——————————————— 1. Key formula (1) Weighted Average Cost of Capital (WACC): Ryace = (1 - T)RD— + RF ~ E' (2) Capital Asset Pricing Model (CAPM): Ry = Ry + B(Ry; Ry). 2. Cost of debt Debt premium over government = /\;.50 U.S. Government Interest Rate = g 6\3_/ Cost of DCbI(RD)— & 0\> A AC s 3. Cost of Equity 3-1. Unlevered Asset Beta D E 4 s oDEE e 2= =959 D E R _COU(RA,RM)_COV(RDD+E+RED+Ev M)—[} D +8 E &7 5 Var(Ry)' 7 Var(Ry) °D+E "ED+E N Assuming that debt is riskless with a beta of zero, o % M O (§q =G 65 E Pa= BE,41%levcrage b'f'_E = Pe.co%leverage F'_*__Er o S\és 3-2. Levered Equity Beta (with Marriott's Target of 60% Debt Financing) D' +E' BE,60%leverage = Tﬂ.d =V 4. Riskless Rate Rp = L'V'gg/ 5. Risk Premium RA, = /(Z (O A Y\ : Ry Rp = L&W/ Rg = Rp + BE,60%leverage(R,'»l - Rp) = O( O\ng s A \@ (O {/(2_0/(- 0, A837. 46,6497, 6. CAPM 7. Rwacc D 4 RWACC=(1—T)RDD+E'*'RED+E_ (( A= 0p)% 0| AAS « (6,60 [A))* ((C At x (O IN)) = fO A2 ¥