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o-na [289]
3 years ago
6

Using the CAPM, compute the cost of equity capital for the lodging division at the target leverage ratio for the division. Expla

in why this is higher than the cost of equity capital if Marriott had a zero-debt policy.
Business
1 answer:
Semenov [28]3 years ago
6 0

Answer:

Information from 1987:

There is a lot of information missing, I'll try to fill some important blanks:

Marriots's total debt $2,500 million (59% of total capital)

since debt to capital ratio = total debt / (total equity + debt)

then, we can assume equity = $1,737 million (41% of total capital)

the lodging division's number were a little different:

debt to capital 74%

equity = 26%

cost of debt = 1.1% + long term US securities interest rate (8.95%) = 10.05%

cost of equity = risk free rate + (beta x risk premium) =

  • risk free rate = short term T-bills = 5.46%
  • beta = 1.11
  • market premium = 7.92%

cost of equity = 5.46% + (1.11 x 7.92%) = 14.25%

Marriot's Lodging division's WACC = (26% x 14.25%) + (74% x 10.05% x (1 - 42% corporate tax rate) = 3.71% + 4.31% = 8.02%

If Marriot had a zero debt policy, its cost of equity would be lower because the business risk would be lower. The cost of debt is lower because interest payments decrease income taxes. But at the same time, you have to earn enough money to pay your interest obligations on time. That extra pressure to make more money, increases the company's risk. As the company's risk increases, investors will demand higher returns for their investment. That is why T-bills yield the lowest returns, simply because they are a extremely safe investment. As risk increases (more interests = more risks), investors will demand a higher rate of return and cost of equity will increase.  

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A small marketing group uses Google Display Ads to help deliver relevant advertising to people browsing the web. Which statement
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The Display Ads connects with audiences through social media platforms and millions of other websites partnering with them.

<h3><u>Explanation:</u></h3>

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3 0
3 years ago
The production department of Zan Corporation has submitted the following forecast of units to be produced by quarter for the upc
serious [3.7K]

Answer:

1 & 2. Purchases of Raw Material

                          Purchases in grams                       Cost  

  Quarter 1               68,250                                      $ 81,900

  Quarter 2              82,250                                      $ 98,700

  Quarter 3              75,250                                       $ 90,300

  Quarter 4              60,500                                       <u>$ 72,600</u>

  Full year                                                                  $ 343.500

3. Expected Cash disbursements

  Quarter 1                                                                  $ 54,740

  Quarter 2                                                                 $ 91,980

  Quarter 3                                                                 $ 93.660  

  Quarter 4                                                                 <u>$ 79,680</u>

Total Year payments                                                 $ 320,060

4.  Total cost of Direct Labor    

  Quarter 1                                                                  $ 27,900

  Quarter 2                                                                 $ 37,200

  Quarter 3                                                                 $ 34,100  

  Quarter 4                                                                 <u>$ 31,000</u>

Total Year for direct labor                                       $ 130,200

Explanation:

Computation of raw material purchases

<u>Raw material consumption</u>

Qtr No of Units per qtr Total Requirement

1        9,000 * 7 gms per unit =      63,000 gms

2      12,000 * 7 gms per unit =      84,000 gms

3       11,000 * 7 gms per unit =      77,000 gms

4       10,000 * 7 gms per unit =     <u>70,000</u> gms

Total Year                                     294,000 gms

Raw Material Purchases for each quarter

Purchases = Closing inventory + Consumption - Opening inventory

1 21,000 (84,000gms * 25 % ) + 63,000 - 15.750 =  68,250 gms  

2 19,250 (77,000gms* 25 %) + 84,000 - 21,000 =  82,250 gms

3 17,500 ( 70,000gms* 25 %) + 77,000-19,250 =  75,250 gms

4 8,000 ( As per data) + 70,000-17.500            =  60,500 gms

Total year purchases =                                       =  286,250 gms

<u>Cost of purchases</u>

Quarter 1    68,250 gms  * $ 1.20     = $  81,900

Quarter 2   82,250 gms * $ 1.20      = $  98,700

Quarter 3   75,250 gms * $ 1,20     =  $ 90,300

Quarter 4   60,500 gms * $ 1,20    =   <u>$ 72,600</u>

Total purchases                                   $ 343,500

Computation of cash disbursements for purchases

Quarter 1 Payments = Opening Payables + 60 % of quarter 1

$ 5,600 + ( 60 %* $ 81,900) = $ 5,600 + $ 49,140 =               $ 54,740

Quarter 2 payments

(40 % of quarter 1) + ( 60 % of quarter 2)

($ 81,900 * 40 %) + ( $ 98,700 * 60 %)

$ 32,760 + $ 59,220                                               =                $ 91,980

Quarter 3 payments

(40 % of quarter 2) + ( 60 % of quarter 3)

($ 98,700 * 40 %) + ( $ 90,300 * 60 %)

$ 39,480 + $ 54,180                                                =                $ 93.660    

Quarter 4 payments

(40 % of quarter 3) + ( 60 % of quarter 4)

($ 90,300 * 40 %) + ( $ 72,600 * 60 %)

$ 36,120 + $ 43,560                                                =               <u> $ 79,680</u>

Total payments for purchases for the year                            $ 320,060

Computation of direct labor cost  

No of units * Estimated Direct labor hours * Labor rate per hour

Quarter 1  =    9,000 * 0.20 per unit * $ 15.50               =         $  27.900

Quarter 2  =   12,000 * 0.20 per unit * $ 15.50               =        $  37.200

Quarter 3       11,000 * 0.20 per unit * $ 15.50               =         $  34.100

Quarter 4       10,000 * 0.20 per unit * $ 15.50               =         <u>$  31.000</u>

Total cost for Direct labour                                                        $ 130,200

8 0
3 years ago
__________ modules deal with issues such as setting objectives, employee performance management, and performance-based compensat
Nikolay [14]

Answer:

Employee Resources Management (ERM)

Explanation:

Employee Resources Management (ERM), modules makes use of Customer Relationship Management tools to attend to matters relating to employees' such as employee retention and performance..

4 0
3 years ago
RLW-II Enterprises estimated that indirect manufacturing costs for the year would be $60 million and that 12,000 machine hours w
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Answer: $3,150,000

Explanation:

Total cost of production will be the total sum of the material costs, labor costs and indirect costs.

Indirect Costs

It was estimated that 12,000 machine hours would be used at a cost of $60 million.

Indirect cost per machine hour is;

= 60,000,000/12,000

= $5,000 per hour

With 200 machine hours, indirect cost is;

= 200 * 5,000

= $1,000,000

Total cost of production = 1,250,000 + 900,000 + 1,000,000

= $3,150,000

5 0
3 years ago
Which two tasks does an industry safety and health engineer perform?
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Answer:

They both care for the well-being of people and they also keep people safe.

I'm assuming

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