Marriott Corporation” the Cost of Capital Essay Example for Free

Marriott Corporation† the Cost of Capital Essay What is the weighted average cost of capital for the Marriott Corporation and cost of capital for each of its divisions? – What risk-free rate and risk premium did you use to calculate the cost of equity? – How did you measure the cost of debt? – How did you measure the beta for each division? Solution What risk-free rate and risk premium did you use to calculate the cost of equity? – Risk-free rate proxy The risk-free rate is determined using the yields of U. S. Treasury securities, which are risk-free from default risk. U.S. Treasuries are subject to interest rate risk, therefore, the selected maturity should correspond to an investment horizon[1]. – Investment horizon According to the cost-of-capital calculation methodology used by Marriott Corporation, lodging division was treated as long-term, while restaurant and contract services divisions were treated as short-term because those assets had shorter useful lives. – Expected return proxy Arithmetic average return is more suitable than geometric mean as it is better in estimating an investment’s expected return over a future horizon based on its past performance (geometric mean is a better description of long-term historical performance of an investment). – Risk-free interest rate Taking into account the above, arithmetic average annual returns of long-term U.S. government bonds for the period 1951-1987 (4.88%, see Appendix 1) is  considered to be risk-free rate for lodging division. Arithmetic average annual returns of short-term U.S. government bonds for year 1987 (5.46%, see Case Exhibit 4) is considered to be risk-free rate for restaurant and contract services divisions. – Market proxy SP 500 index is selected as a market proxy as it is believed to be close to the true market portfolio. As it is important to use historical returns for the same market index used to calculate beta (which is given), an assumption is made that the given leverage data is calculated based on the same SP 500 index. – Market risk premium Market risk premium should be calculated for the same horizon as that used for the risk-free interest rate. Thus a spread between SP 500 composite returns and long-term U.S. government bond returns for the period 1951-1987 (7.88%, see Appendix 2) is a market risk premium for lodging division. A spread between SP 500 composite returns and short-term U.S. government bond returns for year 1987 (-0.23%, see Case Exhibit 5) is a market risk premium for restaurant and contract services divisions. How did you measure the cost of debt? Marriott Corporation and each division are given market value-target leverage ratios and credit spreads as well as U.S. government interest rates as of April 1988 (see Case Tables A and B). According to investment horizons discussed above, the following cost of debt is estimated: How did you measure the beta for each division? Ideally, when estimating beta by using past returns, time interval should be consistent with an investment horizon. Betas given in Case Exhibit 3 are estimated over 1986-1987 period. As these are the only betas given, they are assumed to be relevant for both long-term and short-term investment horizons. Equity betas of each division are calculated from comparable hotel and restaurant companies. Equity betas are then unlevered taking into account financing structure of each company according to the following formula: [pic], where Tax = 40% An average of unlevered betas of comparable companies is assumed to be a proxy for unlevered betas of Marriott divisions. For calculations of unlevered betas for each division see Appendix 4. What is the weighted average cost of capital for the Marriott Corporation and cost of capital for each of its divisions? WACC is calculated according to the formula given in the case taking into account the tax shield. Cost of equity is calculated according to CAPM model.

The Paradox Of The Thrift Economics Essay

The Paradox Of The Thrift Economics Essay The theory of paradox of thrift is the idea that saving instead of spending can cause or deepen a recession. According to John Maynard Keynes, consumer spending is beneficial because one persons expenditure is another persons income. Therefore, an increase in savings would mean that businesses lose out on revenue and have to lay off employees who are then unable to save. As a result, increase in individual savings would reduce the total saving rate. On the other hand, some economists argue that, savings can be beneficial to an economy. If the society decides to save in a bank, the banks would loan that money to firms and who in return will invest into capital, producing a positive multiplier effect. It just depends which phase of the economic cycle the economy is operating. During low demand market conditions like at the moment, saving is beneficial for the one who saves, but of little use to the overall economy, this is known as the fallacy of compositions. C:UsersPawanjeetDownloads20121208_165525.jpg In the Paradox of Thrift, household and producers reduce their expenditure in anticipation of a future recession. It is referred as paradox because its behavior which seems beneficial is actually detrimental to the economy. Its beneficial for the individual who decides to save, but the society as a whole experiences economics problems. Assume there was an exogenous increase in planned savings due to future expectations of the UK economy. This means that the autonomous savings will increase; hence the saving function will have parallel shift upwards. A rise in the thriftiness will lead to a reduction in national income (Y1 to Y2), consequently savings will decrease from B to A. Furthermore, due to the shift, S>I which implies that Y>AD, therefore there will excess supply of goods. The result will be paradoxical because an increase in saving will eventually translate reduction in national income.C:UsersPawanjeetDropboxPhotos20121209_172334.jpg The lower consumption will discourage firms from investing, if investment falls, the J line will shift downwards. There will be further multiplied fall in national income. Due to the negative speculation of the economy, lets assume that the marginal propensity to withdraw is now 0.75 and marginal propensity to consumption (domestic goods) is also 0.25. Consider that the initial investment falls from 100 to 50 (million) in the economy. Therefore, as firms reduce investment, workers will be made redundant. These workers will have no spending money, therefore causing other business to experience a decline in customers. When wages will be received, 0.75 would be withdrawn and only 0.25 will be spent on domestic goods. The reduction in consumption would generate further losses for firms, generating 12.5 million incomes for firms from the initial 50 million. When this is received by households in term wages, 0.75 will be withdrawn and 0.25 will be spent. There will be further decrease in n ational income by a further 3.125 million. Therefore each time we go round, national income will decrease due to the multiplier. As a result, the economy will contract and firms will experience hefty losses in revenue, resulting in several closure. According, to the consumption function, as income decreases so do savings, therefore more savings will lead to ultimately and paradoxically less savings.C:UsersPawanjeetDropboxPhotos20121208_182123.jpg C:UsersPawanjeetDropboxPhotos20121208_201542.jpg The theory behind the paradox of thrift has been widely criticised. Firstly, its a theory and subjective, therefore its not a stated fact. Secondly, given the example above, the paradoxical result may not occur if an increase in savings will lead to simultaneous increase in planned investment. Consequently, both the investment and the saving function will shift upwards; therefore national income will not be affected. Furthermore, when the multiplier becomes smaller due to higher marginal propensity to save, the IS Curve will shift from IS to IS1. This will influence aggregate demand to shift leftwards; hence there will be a reduction in prices. As price decrease, this will shift the LM curve to the right, forming a new equilibrium. Consequently, we will have lower interest rates and prices. Therefore, when interest rates fall this will influence firms to invest and when prices decrease this will trigger a rise in demand again, so the theory of the paradox of thrift is contradictory. Economist argues that saving can translate to investment, therefore in a recession, saving can be beneficial. Savings will allow these investments to be financed without problem of interest rates or inflation. Suppose an individual decides to save  £10,000 in a saving account. Consequently, the bank would lend money to a firm who would spend it to expand or to the government by purchasing treasuries. When the fund is given to firm, they will invest into capital that would boost total output. Therefore, theoretically, an increase in savings will allow a higher growth in potential GDP, especially if the investment is in new technologies. During 1950s, Americans put away more than 9% of their income. Their savings translated into stocks and bonds and formed a pool of capital investment. They experienced a golden era of productivity and growth, leading towards the 1990s boom. Although this changed, in the mid-1980s, this is because credit become easily accessible, therefore people were not saving for future consumption, because they could use to borrowing. By the late 2000s, the savings rate plunged to less than 1%. * Theoretically, using the GDP equation (closed economy) we derive that saving=investment Y=C+I+G (1) I=Y-C-G (Rearrange to make I the subject) S (private) = amount produced (Y) +transfer payment from the government (TR) consumption (C) Taxes (T) S (public) = T-G-TR Total saving in the economy will be s (public) +s (private) = T-G-TR+Y+TR-C-T=S Therefore, total saving in the economy =Y-G-C Sub into equation (1) S=C+I+G-G-C Therefore, S=I This shows that the total amount of savings in the economy is equal to investment Source: Gfk nop 2012 In the Wall Street Journal, the writer states savings would translate into more investment and faster growth. This view has been supported in the work by Fazzari (2007). On the contrary, what will happen if the firm does not invest into capital? What will happen when banks do not give loans to firms? The statement that saving=investment is contradictory. It does not necessarily mean that every pound saved will be invested. Investment does not only depend on household savings; it could be animal spirit, business confidence, aggregate demand and cooperation tax that could influence investment. Therefore its only an assumption and not a stated fact. Furthermore, higher savings would mean there would be less consumer expenditure, therefore aggregate demand for goods and services would weaken, hence investment into capital goods could occur only in the long run. Moreover, during low market demand conditions like the current one, firms may not want to invest, if there is not demand for cre dit, the banks have no place to lend the money. In the UK economy, consumer confidence decreased to -31 in March and its to further reduce to due to planned austerity. Therefore investments are unlikely, regardless of any increase in savings. Furthermore, during boom in the economy cycle, where inflation is inevitable, increased savings can help. C:UsersPawanjeetDropboxPhotos20121212_140639.jpg Consider an overheated economy; where there is little spare capacity in the economy, therefore an increase in aggregate demand will lead to subsequently only to an increase in prices. The government will try to depress aggregate demand and economic activity. In other words, the government will try to encourage savings to hamper consumption in the short run. Consequently, this will lead aggregate demand to have a parallel shifts inwards, reducing prices levels from p1 to p2. Reduced inflation provides certainty towards consumers and businesses, who will be able to make long term plans due to certainty that there would less chance of their money losing its purchasing power. On the contrary, there will be a cost of reducing inflation as it will impact upon low income earners, decline in economic growth and will result in higher unemployment. As shown from the macro perspective, an increase in saving for the economy as a whole may lower aggregate demand and initially reduces output, income and probably investment. So would savings be ever desirable? Yes, during an overheated economy, increases in savings can help reduce consumption, which would therefore reduce prices levels. Furthermore, as some argue, increases in savings may likely to influence investment levels. It just depends which phase of the economic cycle the economy is operating. During low demand market conditions like at the moment, saving are beneficial for the one who saves, but of little use to the overall economy.

New Beginnings in Whos Afraid of Virginia Woolf :: Whos Afraid Virginia Woolf

New Beginnings in Who's Afraid of Virginia Woolf  Ã‚   Edward Albee's Who's Afraid of Virginia Woolf is a disturbing and powerful work. Ironically, it is disturbing and powerful for many of the same reasons. As the audience watches George and Martha tear savagely at each other with the knives of hurled words, sharpened on pain and aimed to draw blood, the way in which these two relentlessly go at each other is awful to see, yet strangely familiar. Like wounded animals, they strike out at those closest to them, and reminds one of scenes witnessed as a child between screaming parents from a cracked door when one is supposed to be in bed. In this age of psychoanalytic jargon, George and Martha are the quintessentially dysfunctional couple. Yet, with all their problems, Albee reveals that there is a positive core of feeling that unites these two troubled people and that helps them look beyond their self-created hell. The truth of their relationship is exposed layer by layer as the play progresses, like the peeling of an onion, and though the pattern of this truth appears vague at first, with each cycle of revelation, the pattern becomes more distinct, and the picture is fully revealed in the final, cathartic scene. One of the most consistent themes of the play is the question of George and Martha's "child," and all that this child, and children in general, symbolizes for them. The "child" seems not only a desire for fecundity within their relationship, but also a projection through which they express many of their personal desires, needs, and problems, and, in this context, the child's subsequent "death" signifies a mi lestone in their understanding of their marriage and of themselves. By the end of play, after much suffering and flagellation, George and Martha appear ready to deal with their lives in a new way. George and Martha have a history. They are also emotionally trapped by this history, especially that of their respective childhoods. As a consequence, both are plagued by low self-image and self-doubt. The audience learns of this history slowly, in bits and pieces. Martha tells Nick and Honey in Act 1 how she lost her mother early and grew up very close to her father. She was married briefly, but her father had the marriage annulled. She returned to live with her father after college, and met and fell in love with George.

The Great Gatsby :: essays research papers

  Ã‚  Ã‚  Ã‚  Ã‚  The Great Gatsby is written by F. Scott Fitzgerald. Nick Carraway is a neutral character and narrates this novel. He witnesses most of the interactions between the characters, yet states only what happens and not just his opinion. Nick moves from the mid-west to Long Island. Jay Gatsby lives next door to Nick in the East Egg. He lives in a mansion, which he bought with the money he made by being involved in organized crime. He lives across from Tom and Daisy. Daisy used to go out with Jay but she broke up with him because he could not support her lifestyle. While Tom is having an affair with another woman, Myrtle, Jay and Daisy have one. Tom gets bored with his affair and decides to stop Jay and Daisy’s. While Tom and Daisy are driving in car, Daisy hits Myrtle, yet Tom says it was Jay. Myrtle’s husband gets furious, kills Jay and then himself. Fitzgerald uses this book to tell Americans not to try to make dreams reality by corruption. To gain money by illegal sources is not the way to achieve the â€Å"American Dream†. Nick lives next to a mansion, which belongs to Jay Gatsby and becomes friends with him. Jay turns out to still like Daisy, who is Nick’s second cousin. Before Jay was sent to the army, he and Daisy were together. Yet because of Jay’s lack of money, Daisy broke up with him. Through his friend Meyer Wolfsheim, who fixed the World Series in 1919 and involved in organized crime, he gained his fortune. When he returned, Daisy had already been married to another wealthy person, Tom Buchanan. Nick arranges for the two of them to meet, and they have an affair. Tom, who is also having an affair with a married woman, Myrtle, confronts Daisy and Jay, and Daisy is forced to return to Tom. As Daisy and Gatsby are driving, they run over and kill Myrtle Wilson, Tom’s mistress. Tom lies to Mr. Wilson, and tells him that Gatsby was the driver, when actually, Daisy was driving. Wilson shoots Gatsby at his home afterwards and then commits suicide. Nick is disappointed with the life , which he planned for in New York and decides to go back to his hometown in the mid-west. The Great Gatsby took place during the Roaring Twenty’s. Nick graduated from New Haven in 1915 and â€Å"I came East, permanently, I thought, in the spring of twenty-two.

Technical Theater During the Restoration Lighting and Scenic Design England 1660-1800 :: English Theater

Technical Theater During the Restoration Lighting and Scenic Design England 1660-1800 The Restoration in England was an era ripe for the development of new ideas in the arts. The return of the Stuart monarchy under Charles II marked the end of eighteen years of almost dictatorial control by Oliver Cromwell and his Puritan parliament. Cromwell had campaigned actively to halt all theatrical activity. In the end, however, his laws were actually responsible for helping move England forward in theatrical history. Actors, under Cromwell's laws, were to be apprehended a rogues if they were caught "in the act" so to speak of performing their trade. Some left their careers and sought employment elsewhere. Most, however, remained undaunted by parliament's threats. Productions continued quietly in tennis courts, inns and private houses. Officials were bribed to keep silent their knowledge of violations. The theater in England had moved indoors as it had already done in France and Italy. Although the reasons for the move were different, the end result was the same. Up until this time plays had always been performed outdoors in the early afternoon. Performances traditionally relied on sunlight, natural scenery, and minimal set pieces that could be easily transported from one location to another. Indoor productions required something much more elaborate. The preliminary concepts of scenic design and lighting design began to form in England in the late 1650's. During the Restoration, as controls were lifted, technical theater began to flourish. Many early examples of modern stage techniques were born between 1660 and 1800, making the Restoration a significant era in the history of scenic design and lighting for the theater. The art of scenic design did not begin in England. As early as 1570 the Italians were giving elaborate opera performances in the ducal courts using perspective scenes and various types of stage machinery. The French mimicked the design ideas of the Italian's and gave them a name, la scene a l'italienne. (Souther n 221) Although Cromwell had banned public theater, opera was still considered a lawful art form. In England, just prior to the Restoration, John Webb designed the scenery for William D'avenant's 'opera' production of The Siege of Rhodes.

Bric

The emerging economics, the so-called BRICs: Brazil, Russia, India, and China are predicated to be global players in next few decades. In being the world’s top global players these countries must realize that in order to become a true global power they will have to take on greater social responsibilities that will deal with ethical concerns. An increasing number of companies are moving production to the BRICs in order to take advantage of generous tax incentives, high productivity rates, and cheap labor. For example, Wal-Mart and Bharti Enterprises, a leading Indian cell phone operator, plan to open hundreds of Wal-Mart superstores across India by 2010 (International Business Environments and Operations, Applegate, Austin, and Soule 2009 pp. 219). However, with the BRICs emerging as economic powerhouses and the increasing number of foreign counties increasing to do business with them ethical rules must integrate into their business practices for the BRICs to have an impact on the whole world. Brazil has been an aspiring contender in the up and coming emerging counties but it has been struggling for decades because it has struggled to achieve expectations due to problems in income equality, productivity, and education. In order to obtain the status as one of the world’s leaders these social responsibilities must be addressed and corrected. The emergence of the BRICswill challenge the well-being and sustainability of the global environment. China is one of the pillars of the global economy, but controversies surround China’s future growth because of the controversy surrounding Chinese labor practices or tainted imports traced back to Chinese suppliers. In addition to the surrounding labor and tainted imports our Western-centric view of the world and current media restrictions in China the world’s largest country remains mysterious in many ways. Because of this, the development of a greater focus on corporate social responsibility in China has gone somewhat unnoticed. Chinese government has acted with some hesitancy in years past to fully embrace a more updated idea of corporate social responsibility because of fears such as added costs to exporting goods; however the situation has now changed. Not only are there new proposed regulations that foreign companies must submit their own sustainability reports within China, but various sectors within the Chinese economy have embraced both domestic and international standards to help propel Chinese businesses to greater heights around the world. ttp://www. chinacsr. com/en/2009/02/23/4572-how-far-can-chinese-companies-take-corporate-social-responsibility/. Russia is faced with incurring concerns with ethical issues that is attributed to their uncertain weak and corrupt government and the emergence of widespread market activity in Russia. Bribery has become a way of business in Russia. According to several recent surveys and interviews with dozens of ordinary Russians, it has surged in scale and scope in recent years under the presidency of Vladimir Putin. The prevalence of corruption and crime in business affairs has been generally recognized as a major cause of concern. Speculation about whether the movement toward a legitimate market economy can be sustained without a foundation of supportive institutions has been justifiably raised. The development of a system of ethical business practices in Russia process is needed to create a civil society along with becoming a global world leader. India is well aware of their involvement in corporate social responsibility to gain a position as one of the world’s strongest leaders. In terms of government rules and regulations, Jagdish Sheth, executive director of the India, China and America Institute and a professor of marketing at Emory University said that in India, â€Å"the government acts as a gatekeeper rather than an enabler, with slow approval, a complex bureaucracy and corruption. Enforcement is also lax† (Sheth, 2007). India has enacted several laws pertaining to child labor laws, environmental, and right to information and corruption laws however there are low levels of government capacity for law enforcement and implementation in India, causing relatively high levels of corruption, but other laws were enacted to give the general public right to government information which was meant to promote transparency and responsibility in the work of all governmental institutions. There is a strong belief in corporate social responsibility in India,† Sheth said. He also noted how Indian management style differs from that in the West: Decisions are made by the person at the top, not in a participatory way. And there is what he called a caste system by education. http://www. scu. edu/ethics/practicing/focusareas/business/conference/2007/presentations/sheth. html

The Nuclear Age Begins

The first nuclear explosion, named â€Å"Trinity†, was detonated July 16, 1945. Main article: History of nuclear weapons During the 1930s, innovations in physics made it apparent that it could be possible to develop nuclear weapons of incredible power using nuclear reactions. When World War II broke out, scientists and advisors among the Allies feared that Nazi Germany may have been trying to develop its own atomic weapons, and the United States and the United Kingdom pooled their efforts in what became known as the Manhattan Project to beat them to it.At the secret Los Alamos laboratory in New Mexico, scientist Robert Oppenheimer led a team of the world's top scientists to develop the first nuclear weapons, the first of which was tested at the Trinity site in July 1945. However, Germany had surrendered in May 1945, and it had been discovered that the German atomic bomb program had not been very close to success. The Allied team produced two nuclear weapons for use in the war, one powered by uranium-235 and the other by plutonium as fissionable material, named â€Å"Little Boy† and â€Å"Fat Man†.These were dropped on the Japanese cities of Hiroshima and Nagasaki in August 1945. This, in combination with the Soviet entrance in the war, convinced the Japanese to surrender unconditionally. These two weapons remain the only two nuclear weapons ever used against other countries in war. Nuclear weapons brought an entirely new and terrifying possibility to warfare: a nuclear holocaust. While at first the United States held a monopoly on the production of nuclear weapons, the Soviet Union, with some assistance from espionage, managed to detonate its first weapon (dubbed â€Å"Joe-1† by the West) in August 1949.The post-war relations between the two, which had already been deteriorating, began to rapidly disintegrate. Soon the two were locked in a massive stockpiling of nuclear weapons. The United States began a crash-program to develop the first hydrogen bomb in 1950, and detonated its first thermonuclear weapon in 1952. This new weapon was alone over 400 times as powerful as the weapons used against Japan. The Soviet Union detonated a primitive thermonuclear weapon in 1953 and a full-fledged one in 1955.Nuclear missiles and computerized launch systems increased the range and scope of possible nuclear war. The conflict continued to escalate, with the major superpowers developing long-range missiles (such as the ICBM) and a nuclear strategy which guaranteed that any use of the nuclear weapons would be suicide for the attacking nation (Mutually Assured Destruction). The creation of early warning systems put the control of these weapons into the hands of newly created computers, and they served as a tense backdrop throughout the Cold War.Since the 1940s there were concerns about the rising proliferation of nuclear weapons to new countries, which was seen as being destabilizing to international relations, spurring regiona l arms races, and generally increasing the likelihood of some form of nuclear war. Eventually, seven nations would overtly develop nuclear weapons, and still maintain stockpiles today: the United States, the Soviet Union (and later Russia would inherit these), the United Kingdom, France, China, India, and Pakistan.South Africa developed six crude weapons in the 1980s (which it later dismantled), and Israel almost certainly developed nuclear weapons though it never confirmed nor denied it. The creation of the Nuclear Non-proliferation Treaty in 1968 was an attempt to curtail such proliferation, but a number of countries developed nuclear weapons since it was signed (and many did not sign it), and a number of other countries, including Libya, Iran, and North Korea, were suspected of having clandestine nuclear weapons programs