The Case questions for the four caselets in “Valuing Capital Investment
Projects” are in the case itself
Case Questions for: Marriott Corporation: The Cost of Capital (Abridged)
1. Are the four components of Marriott’s financial strategy consistent with its
growth objective?
2. How does Marriott use its estimate of its cost of capital? Does this make sense?
3. What is the weighted average cost of capital for Marriott Corporation?
a. What risk-free rate and risk premium did you use to calculate the cost of
capital?
b. How did you measure Marriott’s cost of debt?
4. What type of investments would you value using Marriott’s WACC?
5. If Marriott used a single corporate cost of capital for evaluating investment
opportunities in each of its lines of business, what would happen to the company
over time?
6. What is the correct cost of capital for the lodging and restaurant division of
Marriott?
a. What risk-free rate and risk premium did you use to calculate the cost of
equity for each division? Why did you choose these numbers?
b. How did you measure the cost of debt for each division? Should the debt
cost differ across divisions? Why?
c. How did you measure the beta of each division?
7. What is the cost of capital for Marriott’s contract services division? How can you
estimate its equity costs without publicly traded comparable companies?
Case Questions for: Ocean Carriers
Ocean Carriers uses a 9% discount rate.
1. Do you expect daily spot rates to increase or decrease next year?
2. What factors drive the average daily hire rates?
3. How would you characterize the long-term prospects of the capesize dry bulk
industry?
4. Should Ms. Linn purchase the $39 million capesize? Assume that Ocean Carriers
is a U.S. firm subject to 35% taxation.
5. Now assume that Ocean Carriers is located in Hong Kong, where owners of Hong
Kong ships are not required to pay any tax on profits made overseas and are also
exempted from paying any tax on profit made on cargo uplifted in Hong Kong.
Should the capesize be purchased now?
6. What do you think of the company’s policy of not operating ships over 15 years
old?