Marriot Corporation: The Cost of Capital

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Managerial FinanceAysun AlpIntroductionThe company was founded by J.W. Marriott in 1927. What was once a humble root-beer stand,has now grown into one of United States most well-known businesses in the lodging and foodservice sector. Marriotts success can be gauged from the fact that in the year 1987 there profitswere over the $200 million mark. Marriotts business was divided into three distinct lines thatwere lodging, contract services, and restaurants. Marriott had an aggressive business strategythrough which they actively pursued new opportunities within the already existing lines of theirbusinesses. They also aimed to become not only the most preferred provider of service, butalso the most profitable company in the domain and also the favorite employer.Marriott carefully scrutinized business projects by carefully discounting expected cash flowsat hurdle rates that had been pre-determined and only undertook them once it was sure of theirfuture. Moreover, Marriott had a distinct financial strategy which revolved around four keypoints. Rather than owning assets in the hospitality industry, Marriott looked to manage them.One of the main concerns for Marriott was shareholder value which they looked to maximizeby only investing in appropriate projects. Marriott also aimed to optimize its capital structureby focusing heavily on its ability to service debt. Not only this, but it also bought backundervalued shares as it thought it was a wiser choice as
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