Marriot

Rf 8.72 (Table B)
Wd 0.6 (Table A)
We 0.4
Re 18.99755
Rd* 10.02
Tax** 0.440963
Equity Beta old 1.1 (Exhibit 3)
Debt-to-capital ratio*** 0.497
Equity-to-capital ratio 0.503
Asset Beta 0.5533
Equity risk premium 7.43 (Exhibit 5)
Equity Beta new 1.38325
WACC 10.95995

*Risk-free-rate plus debt-rate-premium above government (Table B)

**Income taxes divided by income before taxes for 1987 (Exhibit 1)
***Average of long-term debt percent to total capita from 1983-1987 (Exhibit 1)
Lodging Restaurant

Rf 8.95 Rf 6.9
Wd 0.74 Wd 0.42
We 0.26 We 0.58
Re 11.05566 Re 12.20561
Rd 10.05 Rd 8.7
Tax 0.440963 Tax 0.440963
Equity beta* 1.09 Equity beta*** 1.08
Equity risk premium** 7.43 Equity risk premium**** 8.47
Asset beta 0.2834 Asset beta 0.6264
WACC 7.032033 WACC 9.121975

Risk free rates obtained from Table B

Cost of debt calculated by adding risk-free-rate plus debt-rate-premium above government (Table B)
Tax rate calculated by dividing Income taxes by income before taxes in 1987 (Exhibit 1)
*Average of Equity Betas of hotels (Exhibit 3)
** Spread between S&P 500 Composite returns and long-term U.S. government bond returns (Exhibit 5)
***Average of Equity Betas of restaurantes (Exhibit 3)
****Spread between S&P 500 Composite returns and short-term U.S. Treasury bill returns (Exhibit 5)
Marriot

Rf 8.72
Wd 0.6
We 0.4
Re 18.99755
Rd 10.02
Tax 0.440963
Equity Beta old 1.1
Debt-to-capital ratio 0.497
Equity-to-capital ratio 0.503
Asset Beta 0.5533
Equity risk premium 7.43
Equity Beta new 1.38325
WACC 10.95995
Contract Division
1988 Beta Weight
Rf 6.9 Marriot Asset Beta 0.5533 1
Wd 0.4 Lodging 0.2834 0.333333 0.094467
We 0.6 Restaurant 0.6264 0.333333 0.2088
Re 13.25335 Contract 0.7501 0.333333 0.250033
Rd 8.7 0.5533
Tax 0.440963
Equity beta* 1.250167
Equity risk premium** 8.47
Asset beta 0.7501
WACC 9.897458

Risk free rates obtained from Table B

Cost of debt calculated by adding risk-free-rate plus debt-rate-premium above government (Table B)
*Average of Equity Betas of restaurantes (Exhibit 3)
**Spread between S&P 500 Composite returns and short-term U.S. Treasury bill returns (Exhibit 5)
Marriot

Rf 8.72
Wd 0.6
We 0.4
Re 18.9975475
Rd 10.02
Tax 0.44096265
Equity Beta old 1.1
Debt-to-capital ratio 0.497
Equity-to-capital ratio 0.503
Asset Beta 0.5533
Equity risk premium 7.43
Equity Beta new 1.38325
WACC 10.9599516