Please refer to the Calculations on the Next Sheet
10.065 14.41242995 42% 58% 13% 10.72242797
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
Fixed
Total
Floating
rD=
8.2
10.25
9.43
Lodging
8
10.05
9.025
Contracts
8.3
10.12
9.392
Restaurants
8.7
10.52
10.065
Marriott
Lodging
Contracts
Restaurants
4.58
4.58
3.54
3.54
β
0.97
1.56267853
1.35672407
1.283639899
rm-rf ( spread) rE=
7.43
7.43
8.47
8.47
Fixed
Calculation of Cost of Equity rE=
rf
= rf + β ( rm - rf )
11.7871
16.19070148 15.03145287
14.41242995
Arithmetic Average Return
Revenues( Beta Equity Weights)
Market Leverage
Calcualtion of rm
MARRIOTT CORPORATION HILTON HOTELS CORPORATION
22.4 13.3
6.52 0.77
HOLIDAY CORPORATION
28.8
1.66
1.46
0.79
LA QUINTA MOTOR INNS
-6.4
0.17
0.38
0.69
RAMADA INNS, INC. CHURCH'S FRIED CHICKEN
11.7 -3.2
0.75 0.39
0.95 0.75
0.65 0.04
COLLINS FOODS INTERNATIONAL
20.3
0.57
0.6
0.1
FRISCH'S RESTAURANTS
56.9
0.14
0.13
0.06
LUBY'S CAFETERIAS
15.1
0.23
0.64
0.01
MCDONALD'S
22.5
4.89
1
0.23
WENDY'S INTERNATIONAL
4.6
1.05
1.08
0.21
10.62
Beta Asset for Mariott
0.637823823
Beta Equity for Mariott
0.97
Beta Asset for Lodging
0.406296418
Beta Asset for Restaurants
0.744511142
(given in the case)
0.97 0.88
0.41 0.14
Beta Asset for Contract Services Division Beta Equity for Lodging Division Beta Equity for Contract Services Division
Beta Equity for Restaurant Division
0.814034442
(worked backward from the company's beta and other two b
1.56267853 1.35672407 1.283639899
Re-levering the asset beta for contract services division usin
Debt Percentage in Capital Marriott
60%
Lodging
74%
Contract
40%
Restaurants
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
Lodging
0.3325 0.72
0.54 0.1222
0.6336 0.77
0.8532
Restaurants
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
