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The Cost of Capital _.xls format - MBA_ PhD and Executive

VIEWS: 23 PAGES: 7

									                                8529d346-ba9d-4160-935e-8df2110d00bb.xls



Exhibit 1 Financial History of Marriott Corporation
                                    (dollars in millions, except per share amounts)
                                                                                               MORE > > > > > >

                                          1978            1979       1980          1981           1982
Summary of Operations

Sales                                       1,174.1        1,426.0     1,633.9       1,905.7        2,458.9
Earnings before interest
    expense and income taxes                 107.1          133.5        150.3         173.3         205.5
Interest Expense                              23.7           27.8         46.8          52.0          71.8
Income before income taxes                    83.5          105.6        103.5         121.3         133.7
Income taxes                                  35.4           43.8         40.6          45.2          50.2
Income from continuing operations             48.1           61.8         92.9          76.1          83.5
Net Income                                    54.3           71.0         72.0          86.1          94.3
Funds provided from cont. operations(b)      101.2          117.5        125.8         160.8         203.6

Capitalization and Returns

Total Assets                                1,000.3        1,080.4     1,214.3       1,454.9        2,062.6
Total capital(c)                              826.9          891.9       977.7       1,167.5        1,634.5
Long-term debt                                309.9          365.3       536.6         607.7          889.3
   Percent to total capital                  37.5%          41.0%       54.9%         52.1%          54.4%
Sharholders' equity                           418.7          413.5       311.5         421.7          516.0

Per Share and Other Data

Earnings per share:
   Continuing operations (a)                   0.25           0.34        0.45          0.57           0.61
   Net income                                  0.29           0.39        0.52          0.64           0.69
Cash Dividends                                0.026          0.034       0.042         0.051          0.063
Shareholders' equity                           2.28           2.58        2.49          3.22           3.89
Market price at year end                       2.43           3.48        6.35          7.18          11.70
Shares outstanding (in millions)              183.6          160.5       125.3         130.8          132.8
Return on avg. shareholders' equity          13.9%          17.0%       23.8%         23.4%          20.0%

Source: Company Reports
(a) The Company's theme park operations were discontinued in 1984
(b) Funds provided from continuing operations consist of income from continuing operations plus depreciation,
    deferred income taxes, and other items not currently affecting workign capital.
(c) Total capital represents total assets less current liabilities


Exhibit 2 Financial Summary of Marriott by Business Segment, 1982-1987
                     (dollars in millions)

                              1982        1983            1984       1985          1986           1987
Lodging:
Sales                         $1,091.7    $1,320.5    $1,640.8       $1,898.4      $2,233.1       $2,673.3
Operating profit                  132.6       139.7       161.2          185.8         215.7          263.9
Identifiable assets               909.7     1,264.6     1,786.3        2,108.9       2,236.7        2,777.4


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Depreciation                     22.7            27.4           31.3           32.4          37.1           43.9
Capital expenditures            371.5           377.2          366.4          808.3         966.6        1,241.9

Contract Services:
Sales                           819.8           950.6        1,111.3        1,586.3       2,236.1        2,969.0
Operating profit                 51.0            71.7           86.8          118.6         154.9          170.6
Identifiable assets             373.3           391.6          403.9          624.4       1,070.2        1,237.7
Depreciation                     22.9            26.1           28.9           40.2          61.1           75.3
Capital expenditures            127.7            43.8           55.6          125.9         448.7          112.7

Retaurants:
Sales                           547.4           679.4          707.0          757.0         797.3          879.9
Operating profit                 48.5            63.8           79.7           78.2          79.1           82.4
Identifiable assets             452.2           483.0          496.7          582.6         562.3          567.6
Depreciation                     25.1            31.8           35.5           34.8          38.1           42.1
Capital expenditures            199.6            65.0           72.3          128.4          64.0           79.6

Source: Company Reports



Exhibit 3 Information on Comparable Hotel and Restaurant Companies


                                                        Aritmetic (a)                                  1987
                                                          Average       Equity (b)    Market (c)    Revenues
                                                           Return         Beta        Leverage      ($ billions)

MARRIOTT CORPORATION                                      22.40%          1.11           41%           6.52
(owns, operates, and manages hotels, restaurants,
 and airline and institutional food services.)

Hotels:

HILTON HOTELS CORPORATION                                 13.30%          0.76           14%           0.77
(owns, manages, and licenses hotels.
Operates casinos.)

HOLIDAY CORPORATION                                       28.80%          1.35           79%           1.66
(Owns, operates, and licenses hotels and restaurants.
Operates casinos.)

LA QUINTA MOTOR INNS                                      -6.40%          0.89           69%           0.17
(Owns, operates, and licenses motor inns.)

RAMADA INNS, INC.                                         11.70%          1.36           65%           0.75
(Owns and operates hotels and restaurants.)

Restaurants:

CHURCH'S FRIED CHICKEN                                    -3.20%          1.45           4%            0.39



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(owns and franchises restaurants and gaming businesses.)

COLLINS FOODS INTERNATIONAL                                20.30%       1.45          10%              0.57
(Operates Kentucky Fried Chicken franchise
and moderately prices restaurants.)

FRISCH'S RESTAURANTS                                       56.90%       0.57          6%               0.14
(Operates and franchises restaurants.)

LUBY'S CAFETERIAS                                          15.10%       0.76          1%               0.23
(Operates Cafeterias.)

MCDONALD'S                                                 22.50%       0.94          23%              4.89
(Operates, franchises, and services restaurants.)

WENDY'S INTERNATIONAL                                      4.60%        1.32          21%              1.05
(Operates, franchises, and services restaurants.)

Source: Casewriter estimates.

(a) Calculated over the five-year priod of 1983-1987
(b) Estimated using five years of monthly data over the 1983-1987 period by ordinary least squares
(c) Book value of debt divided by the sum of the book value of debt plus the market value of equity.


Exhibit 4 Annual Holding-Period Returns for Selected Securities
              and market Indexes, 1926-1987


                                         Arimethic                  Standard
Years                                    Average                    Deviation

Short-term Treasury bills:

              1926-87                           3.54%                     0.94%
              1926-50                           1.01%                     0.40%
              1951-75                           3.67%                     0.56%
              1976-80                           7.80%                     0.83%
              1981-85                          10.32%                     0.75%
                 1986                           6.16%                     0.19%
                 1987                           5.46%                     0.22%

Long-term U.S. Government bonds returns:

              1926-87                           4.58%                     7.58%
              1926-50                           4.14%                     4.17%
              1951-75                           2.39%                     6.45%
              1976-80                           1.95%                    11.15%
              1981-85                          17.85%                    14.26%
                 1986                          24.44%                    17.30%
                 1987                          -2.69%                    10.28%




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Long-term, high-grade corporate bond returns:

            1926-87                       5.24%                      6.97%
            1926-50                       4.82%                      3.45%
            1951-75                       3.05%                      6.04%
            1976-80                       2.70%                     10.87%
            1981-85                      18.96%                     14.17%
               1986                      19.85%                      8.19%
               1987                      -0.27%                      9.64%

Standard and Poor's 500 Composit Stock Index returns:

            1926-87                      12.01%                     20.55%
            1926-50                      10.90%                     27.18%
            1951-75                      11.87%                     13.57%
            1976-80                      14.81%                     14.60%
            1981-85                      15.49%                     13.92%
               1986                      18.47%                     17.94%
               1987                       5.23%                     30.50%


Source: Casewriter estimates based on data from the University of
Chicago's Center for Research in Security Prices.



Exhibit 5   Spreads between S&P 500 Composite Returns and Bond Rates


                                   Arimethic                   Standard
Years                              Average                     Deviation

Spread between S&P 500 Compsoite returns
and short-term U.S. Treasury bill returns:

            1926-87                       8.47%                     20.60%
            1926-50                       9.89%                     27.18%
            1951-75                       8.20%                     13.71%
            1976-80                       7.01%                     14.60%
            1981-85                       5.17%                     14.15%
               1986                      12.31%                     17.92%
               1987                      -0.23%                     30.61%

Spread between S&P 500 Compsoite returns
and long-term U.S. Government bond returns:

            1926-87                       7.43%                     20.78%
            1926-50                       6.76%                     26.94%
            1951-75                       9.48%                     14.35%
            1976-80                      12.86%                     15.58%
            1981-85                      -2.36%                     13.70%
               1986                      -5.97%                     14.76%


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                 1987                          7.92%                         35.35%

Spread between S&P 500 Compsoite returns
and long-term high-grade corporate bond returns:

              1926-87                         6.77%                          20.31%
              1926-50                         6.06%                          26.70%
              1951-75                         8.82%                          13.15%
              1976-80                        12.11%                          15.84%
              1981-85                        -3.47%                          13.59%
                 1986                        -1.38%                          14.72%
                 1987                         5.50%                          34.06%


Source: Casewriter estimates based on data from the University of
Chicago's Center for Research in Security Prices.


Marriott Corporation: The Cost of Capital (Abridged)
Harvard Business School
Case Software 2-293-753

Copyright (c) 1993 by the President and Fellows of Harvard College.




Professor Richard S. Ruback prepared this case as a basis for class discussion
rather than to illustrate either effective or ineffective handling of an administrative situation




                                                       SCROLL DOWN FOR LIST OF EXHIBITS...



WORKSHEET NAVIGATION

This worksheet contains the data from the following exhibits:

            Exhibit 1: Financial History of Marriott Corporation
            Exhibit 2: Financial Summary of Marriott by Business Segment, 1982-1987
            Exhibit 3: Information on Comparable Hotel and Restaurant Companies
            Exhibit 4: Exhibit 4 Annual Holding-Period Returns for Selected Securities
                                        and market Indexes, 1926-1987
            Exhibit 5: Spreads between S&P 500 Composite Returns and Bond Rates

The first exhibit is located in the A1 position.
To view each succeeding exhibit, use the SCROLL Bar to view the next exhibit




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                            8529d346-ba9d-4160-935e-8df2110d00bb.xls



OPTIONAL NAVIGATIONAL TECHNIQUE

Each exhibit in this worksheet has been named using the <Formula>
<Define> <Name> commands in Excel. This allows you to easily move
from one section of the worksheet to another. Either of the following
techniques will allow you to move from one exhibit to another.

Click on <Formula> in the menu bar, then select <Go to...> from pulldown menu
A dialog box will appear listing the exhibits
Click on the exhibit you wish to view, then click on <OK>.

                           OR

You may use the scroll bar or arrow keys to page down through the list
of exhibits if the one you wish to view is not immediately apparent.

SCROLL TO A1 TO GO TO FIRST EXHIBIT...




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MORE > > > > > >

                   1983       1984       1985        1986            1987


                    2,950.5    3,524.9    4,241.7     5,266.5         6,522.2

                     247.9      297.7      371.3        420.5          489.4
                      62.8       61.6       75.6         60.3           90.5
                     185.1      236.1      295.7        360.2          398.9
                      76.7      100.8      128.3        168.5          175.9
                     108.4      135.3      167.4        191.7          223.0
                     115.2      139.8      167.4        191.7          223.0
                     272.7      322.5      372.3        430.3          472.8




                    2,501.4    2,904.7    3,663.8     4,579.3         5,370.5
                    2,007.5    2,330.7    2,861.4     3,561.8         4,247.8
                    1,071.6    1,115.3    1,192.3     1,662.8         2,498.8
                     53.4%      47.9%      41.7%       46.7%           58.8%
                      628.2      675.6      848.5       991.0           810.8




                       0.78       1.00       1.24        1.40            1.67
                       0.83       1.04       1.24        1.40            1.67
                      0.076      0.093      0.113       0.136           0.170
                       4.67       5.25       6.48        7.59            6.82
                      14.25      14.70      21.58       29.75           30.00
                      134.4      128.8      131.0       130.6           118.8
                     20.0%      22.1%      22.1%       20.6%           22.2%



s depreciation,




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