Calculation of WACC

WACC= (1-t)*rD(D/V)+rE*(E/V)
t= rD= rE= D/V= E/V= Percentage of total revenues WACC=

Mariott

Lodging

Contract Restaurant

44.10% 9.43 9.025 9.392 11.7871 16.19070148 15.03145287 60% 74% 40% 40% 26% 60% 100% 41% 46% 7.877873342 7.943113345 11.11906325

10.065 14.41242995 42% 58% 13% 10.72242797

Please refer to the Calculations on the Next Sheet

Table A Exhibit 2

Calculation of t (1987)
Income Taxes EBT 175.9 398.9

t (EBT/Income Taxes)

44.10%

Calculation of Cost of Debt Floating

rD=
Lodging

Fixed
10.25
10.05

Total
9.43
9.025

Floating Fixed

8.2
8

Contracts
Restaurants

8.3
8.7

10.12
10.52

9.392
10.065

Calculation of Cost of Equity

rE= = rf + ( rm - rf )

Marriott
rf

Lodging
4.58
1.56267853

Contracts
3.54
1.35672407

Restaurants
3.54
1.283639899

4.58
0.97

rm-rf ( spread) rE=

7.43
11.7871

7.43

8.47

8.47
14.41242995

16.19070148 15.03145287

Calcualtion of rm Arithmetic Average Return

MARRIOTT CORPORATION HILTON HOTELS CORPORATION
HOLIDAY CORPORATION

Revenues( Beta Equity Weights)

6.52 0.77
1.66

Market Leverage
0.41 0.14
0.79

22.4 13.3
28.8

0.97 0.88
1.46

LA QUINTA MOTOR INNS

RAMADA INNS, INC. CHURCH'S FRIED CHICKEN

-6.4
11.7 -3.2

0.17
0.75 0.39

0.38
0.95 0.75

0.69
0.65 0.04

COLLINS FOODS INTERNATIONAL

FRISCH'S RESTAURANTS

20.3
56.9

0.57
0.14

0.6
0.13

0.1
0.06

LUBY'S CAFETERIAS
MCDONALD'S

15.1
22.5

0.23
4.89

0.64
1

0.01
0.23

WENDY'S INTERNATIONAL

4.6

1.05
10.62

1.08

0.21

Beta Asset for Mariott

Beta Equity for Mariott

0.637823823
0.97 (given in the case)

Beta Asset for Lodging

Beta Asset for Restaurants

0.406296418
0.744511142

Beta Asset for Contract Services Division Beta Equity for Lodging Division
Beta Equity for Contract Services Division

0.814034442

(worked backward from the company's beta and other two b

Beta Equity for Restaurant Division

1.56267853 1.35672407 1.283639899

Re-levering the asset beta for contract services division usin

Debt Percentage in Capital

Marriott
Lodging

60%
74%

Contract
Restaurants

40%
42%

1 year rate + Debt Rate Premium above Govt Bond 30 Year US Govt Bond + Debt Rate Premium above Govt Bond

Assuming Arithmetic average returns of Long term US Govt Bonds for Marriott and Lodging. For Contracts and Restaurants, arithmetic average returns of short term treasury bills has been considered

Assuming Arithmetic average returns of spread between S&P 500 & Long term US Govt Bonds for Marriott and Lodging. Fo Contracts and Restaurants, arithmetic average returns of spread between S&P 500 and short term treasury bills has been considered

Beta Asset
0.5723 0.7568
0.3066

0.1178
0.3325 0.72

Lodging

0.54
0.1222

0.6336
0.77

Restaurants

0.8532

ny's beta and other two betas)

act services division using the market leverage for the same

For Contracts and sidered

nds for Marriott and Lodging. For ort term treasury bills has been