marrott(编辑修改稿)

marrott(编辑修改稿)内容摘要：

f expansionary opportunities and mergers. It is the appropriate discount rate to use for cash flows with risk that is similar to that of the overall firm. To determine the opportunity cost of capital, Marriott required three inputs: debt capacity, debt cost, and equity cost consistent with the amount of debt. The cost of capital depends on each division. In fact the evaluation of the WACC is an appropriate tool to calculate the cost of capital for the corporation as a whole and for each division. The cost of equity One of the two major ponent of WACC is the cost of equity. The cost of equity model takes into account three values which we must calculate a riskfree rate (rf), risk premium rate (expected market return rf), and Beta Value. Before doing the calculations, we will justify our choices. We based it on the “Stocks, Bonds, Bills and Inflation” (SBBI). This workmanship is a standard reference source for business appraisers. It has been published annually since 1983. The beta value As it is said in the case, we already know the equity beta (0,97). But the capital structure (leverage) affects beta estimates. In order to eliminate the effect of leverage, we will calculate the asset beta, which reflects the sensitivity of the firm’s assets abstracting from capital structure. That is why we have to convert the equity beta into the asset beta. Then we can calculate the equity beta without the leverage effect. To calculate the asset beta, we need the current debt value. The ratio D/V for the pany is set at 41% so we can find the ratio E/V is set at 59%. It es from the exhibit 3 which says that the market leverage is the book value of debt divided by the sum of the book value of debt plus the market value of equity. Now, we can reintroduce the effect of leverage in the equity beta using the asset beta. In order to do that, we need the target debt value which is provided in table A (60%). Equity beta = as。