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
¥
