finance HW
brilliant answers
case2_spread_sheet_1.xlsCopyright
| Marriott Corp./Cost |
| Harvard Business School Case #298-101 |
| Case Software #XLS096 |
| Copyright © 2010 President and Fellows of Harvard College. No part of this product may be reproduced, stored in a retrieval system or transmitted in any form or by any means—electronic, mechanical, photocopying, recording or otherwise—without the permission of Harvard Business School. |
Table A
| Table A Market Value-Target Leverage Ratios and Credit Spreads for Marriott and Its Divisions | ||||
| Debt Percentage in Capital | Fraction of Debt at Floating | Fraction of Debt at Fixed | Debt Rate Premium above Government | |
| Marriott | 60% | 40% | 60% | 1.30% |
| Lodging | 74 | 50 | 50 | 1.10 |
| Contract services | 40 | 40 | 60 | 1.40 |
| Restaurants | 42 | 25 | 75 | 1.80 |
Table B
| Table B U.S. Government Interest Rates, April 1988 | |
| Maturity | Rate |
| 30-year | 8.95% |
| 10-year | 8.72 |
| 1-year | 6.90 |
Exhibit 1
| Exhibit 1 Financial History, 1978-1987 (millions of dollars except per share data) | ||||||||||
| 1978 | 1979 | 1980 | 1981 | 1982 | 1983 | 1984 | 1985 | 1986 | 1987 | |
| Summary of Operations | ||||||||||
| Sales | $1,174.1 | $1,426.0 | $1,633.9 | $1,905.7 | $2,458.9 | $2,950.5 | $3,524.9 | $4,241.7 | $5,266.5 | $6,522.2 |
| Earnings before interest expense and income taxes | 107.1 | 133.5 | 150.3 | 173.3 | 205.5 | 247.9 | 297.7 | 371.3 | 420.5 | 489.4 |
| Interest expense | 23.7 | 27.8 | 46.8 | 52.0 | 71.8 | 62.8 | 61.6 | 75.6 | 60.3 | 90.5 |
| Income before income taxes | 83.5 | 105.6 | 103.5 | 121.3 | 133.7 | 185.1 | 236.1 | 295.7 | 360.2 | 398.9 |
| Income taxes | 35.4 | 43.8 | 40.6 | 45.2 | 50.2 | 76.7 | 100.8 | 128.3 | 168.5 | 175.9 |
| Income from continuing operationsa | 48.1 | 61.8 | 62.9 | 76.1 | 83.5 | 108.4 | 135.3 | 167.4 | 191.7 | 223.0 |
| Net income | 54.3 | 71.0 | 72.0 | 86.1 | 94.3 | 115.2 | 139.8 | 167.4 | 191.7 | 223.0 |
| Funds from continuing operationsb | 101.2 | 117.5 | 125.8 | 160.8 | 203.6 | 272.7 | 322.5 | 372.3 | 430.3 | 472.8 |
| Capitalization and Returns | ||||||||||
| Total assets | $1,000.3 | $1,080.4 | $1,214.3 | $1,454.9 | $2,062.6 | $2,501.4 | $2,904.7 | $3,663.8 | $4,579.3 | $5,370.5 |
| Total capitalc | 826.9 | 891.9 | 977.7 | 1,167.50 | 1,634.50 | 2,007.50 | 2,330.70 | 2,861.40 | 3,561.80 | 4,247.80 |
| Long-term debt | 309.9 | 365.3 | 536.6 | 607.7 | 889.3 | 1,071.60 | 1,115.30 | 1,192.30 | 1,662.80 | 2,498.80 |
| Shareholders’ equity | 418.7 | 413.5 | 311.5 | 421.7 | 516.0 | 628.2 | 675.6 | 848.5 | 991.0 | 810.8 |
| Long-term debt/total capital | 37.5% | 41.0% | 54.9% | 52.1% | 54.4% | 53.4% | 47.9% | 41.7% | 46.7% | 58.8% |
| Per Share and Other Data | ||||||||||
| Earnings per share | ||||||||||
| Continuing operationsa | $0.25 | $0.34 | $0.45 | $0.57 | $0.61 | $0.78 | $1.00 | $1.24 | $1.40 | $1.67 |
| Net income | 0.29 | 0.39 | 0.52 | 0.64 | 0.69 | 0.83 | 1.04 | 1.24 | 1.40 | 1.67 |
| Cash dividends | 0.026 | 0.034 | 0.042 | 0.051 | 0.063 | 0.076 | 0.093 | 0.113 | 0.136 | 0.17 |
| Shareholders’ equity | 2.28 | 2.58 | 2.49 | 3.22 | 3.89 | 4.67 | 5.25 | 6.48 | 7.59 | 6.82 |
| Market price (year-end) | 2.43 | 3.48 | 6.35 | 7.18 | 11.70 | 14.25 | 14.70 | 21.56 | 29.75 | 30.00 |
| Shares outstanding (millions) | 183.6 | 160.5 | 125.3 | 130.8 | 132.8 | 134.4 | 128.8 | 131.0 | 130.6 | 118.8 |
| Return on average shareholders’ equity | 13.9% | 17.0% | 23.8% | 23.4% | 20.0% | 20.0% | 22.1% | 22.1% | 20.6% | 22.2% |
| Source: Company reports | ||||||||||
| aThe company’s theme park operations were discontinued in 1984. | ||||||||||
| bFunds provided from continuing operations consist of income from continuing operations plus depreciation, deferred income taxes, and other items not currently affecting working capital. | ||||||||||
| cTotal capital represents total assets less current liabilities. |
Exhibit 2
| Exhibit 2 Financial Summary by Business Segment, 1982-1987 (millions of dollars) | ||||||
| 1982 | 1983 | 1984 | 1985 | 1986 | 1987 | |
| Lodging | ||||||
| Sales | $1,091.7 | $1,320.5 | $1,640.8 | $1,898.4 | $2,233.1 | $2,673.3 |
| Operating profit | 132.6 | 139.7 | 161.2 | 185.8 | 215.7 | 263.9 |
| Identifiable assets | 909.7 | 1,264.6 | 1,786.3 | 2,108.9 | 2,236.7 | 2,777.4 |
| Depreciation | 22.7 | 27.4 | 31.3 | 32.4 | 37.1 | 43.9 |
| Capital expenditures | 371.5 | 377.2 | 366.4 | 808.3 | 966.6 | 1,241.9 |
| Contract Services | ||||||
| Sales | 819.8 | 950.6 | 1,111.3 | 1,586.3 | 2,236.1 | 2,969.0 |
| Operating profit | 51.0 | 71.1 | 86.8 | 118.6 | 154.9 | 170.6 |
| Identifiable assets | 373.3 | 391.6 | 403.9 | 624.4 | 1,070.2 | 1,237.7 |
| Depreciation | 22.9 | 26.1 | 28.9 | 40.2 | 61.1 | 75.3 |
| Capital expenditures | 127.7 | 43.8 | 55.6 | 125.9 | 448.7 | 112.7 |
| Restaurants | ||||||
| Sales | 547.4 | 679.4 | 707.0 | 757.0 | 797.3 | 879.9 |
| Operating profit | 48.5 | 63.8 | 79.7 | 78.2 | 79.1 | 82.4 |
| Identifiable assets | 452.2 | 483.0 | 496.7 | 582.6 | 562.3 | 567.6 |
| Depreciation | 25.1 | 31.8 | 35.5 | 34.8 | 38.1 | 42.1 |
| Capital expenditures | 199.6 | 65.0 | 72.3 | 128.4 | 64.0 | 79.6 |
| Source: Company reports |
Exhibit 3
| Exhibit 3 Information on Comparable Hotel and Restaurant Companies | |||||
| Company and Nature of Business | Arithmetic Average Returna | Geometric Average Returna | Equity Betab | Market Leveragec | 1987 Revenues ($ billions) |
| Marriott Corporation | 22.4% | 21.4% | 0.97 | 41% | $6.52 |
| (Owns, operates, manages hotels, restaurants, airline and institutional food services) | |||||
| Hilton Hotels Corporation | 13.3 | 12.9 | 0.88 | 14 | 0.77 |
| (Owns, manages, licenses hotels; operates casinos) | |||||
| Holiday Corporation | 28.8 | 26.9 | 1.46 | 79 | 1.66 |
| (Owns, manages, licenses hotels, restaurants; operates casinos) | |||||
| La Quinta Motor Inns | -6.4 | -8.6 | 0.38 | 69 | 0.17 |
| (Owns, operates, licenses motor inns) | |||||
| Ramada Inns | 11.7 | 2.8 | 0.95 | 65 | 0.75 |
| (Owns, operates hotels, restaurants) | |||||
| Church’s Fried Chicken | -3.2 | -7.3 | 0.75 | 4 | 0.39 |
| (Owns, franchises restaurants, gaming businesses) | |||||
| Collins Foods International | 20.3 | 17.7 | 0.60 | 10 | 0.57 |
| (Operates Kentucky Fried Chicken franchise, moderately priced restaurants) | |||||
| Frisch’s Restaurants | 56.9 | 49.7 | 0.13 | 6 | 0.14 |
| (Operates, franchises restaurants) | |||||
| Luby’s Cafeterias | 15.1 | 12.8 | 0.64 | 1 | 0.23 |
| (Operates cafeterias) | |||||
| McDonald’s | 22.5 | 21.3 | 1.00 | 23 | 4.89 |
| (Operates, franchises, services restaurants) | |||||
| Wendy’s International | 4.6 | -1.4 | 1.08 | 21 | 1.05 |
| (Operates, franchises, services restaurants) | |||||
| Source: Casewriter’s estimates. | |||||
| aCalculated over period 1983-1987. | |||||
| bEstimated by ordinary least-squares regression using daily data over 1986-1987 period. | |||||
| cBook value of debt divided by the sum of the book value of debt plus the market value of equity. |
Exhibit 4
| Exhibit 4 Annual Holding-Period Returns for Selected Securities and Market Indexes, 1926-1987 | |||
| Arithmetic Average | Geometric Average | Standard Deviation | |
| Short-Term Treasury Bill Returns | |||
| 1926-1987 | 3.54% | 3.48% | 0.94% |
| 1926-1950 | 1.01 | 1.00 | 0.40 |
| 1951-1975 | 3.67 | 3.66 | 0.56 |
| 1976-1980 | 7.80 | 7.77 | 0.83 |
| 1981-1985 | 10.32 | 10.30 | 0.75 |
| 1986 | 6.16 | 6.16 | 0.19 |
| 1987 | 5.46 | 5.46 | 0.22 |
| Long-Term U.S. Government Bond Returns | |||
| 1926-1987 | 4.58% | 4.27% | 7.58% |
| 1926-1950 | 4.14 | 4.04 | 4.17 |
| 1951-1975 | 2.39 | 2.22 | 6.45 |
| 1976-1980 | 1.95 | 1.69 | 11.15 |
| 1981-1985 | 17.85 | 16.82 | 14.26 |
| 1986 | 24.44 | 24.44 | 17.30 |
| 1987 | -2.69 | -2.69 | 10.28 |
| Long-Term, High-Grade Corporate Bond Returns | |||
| 1926-1987 | 5.24% | 4.93% | 6.97% |
| 1926-1950 | 4.82 | 4.76 | 3.45 |
| 1951-1975 | 3.05 | 2.86 | 6.04 |
| 1976-1980 | 2.70 | 2.39 | 10.87 |
| 1981-1985 | 18.96 | 17.83 | 14.17 |
| 1986 | 19.85 | 19.85 | 8.19 |
| 1987 | -0.27 | -0.27 | 9.64 |
| Standard & Poor’s 500 Composite Stock Index Returns | |||
| 1926-1987 | 12.01% | 9.90% | 20.55% |
| 1926-1950 | 10.90 | 7.68 | 27.18 |
| 1951-1975 | 11.87 | 10.26 | 13.57 |
| 1976-1980 | 14.81 | 13.95 | 14.60 |
| 1981-1985 | 15.49 | 14.71 | 13.92 |
| 1986 | 18.47 | 18.47 | 17.94 |
| 1987 | 5.23 | 5.23 | 30.50 |
| Source: Casewriter’s estimates based on data from the University of Chicago’s Center for Research in Security Prices. |
Exhibit 5
| Exhibit 5 Spreads between S&P 500 Composite Returns and Bond Rates, 1926-1987 | |||
| Arithmetic Average | Geometric Average | Standard Deviation | |
| Spread between S&P 500 Composite Returns and Short-Term Treasury Bill Returns | |||
| 1926-1987 | 8.47% | 6.42% | 20.60% |
| 1926-1950 | 9.89 | 6.68 | 27.18 |
| 1951-1975 | 8.20 | 6.60 | 13.71 |
| 1976-1980 | 7.01 | 6.18 | 14.60 |
| 1981-1985 | 5.17 | 4.41 | 14.15 |
| 1986 | 21.31 | 12.31 | 17.92 |
| 1987 | -0.23 | -0.23 | 30.61 |
| Spread between S&P 500 Composite Returns and Long-Term U.S. Government Bond Returns | |||
| 1926-1987 | 7.43% | 5.63% | 20.78% |
| 1926-1950 | 6.76 | 3.64 | 26.94 |
| 1951-1975 | 9.48 | 8.04 | 14.35 |
| 1976-1980 | 12.86 | 12.26 | 15.58 |
| 1981-1985 | -2.36 | -2.11 | 13.70 |
| 1986 | -5.97 | -5.97 | 14.76 |
| 1987 | 7.92 | 7.92 | 35.35 |
| Spread between S&P 500 Composite Returns and Long-Term, High-Grade Corporate Bond Returns | |||
| 1926-1987 | 6.77% | 4.97% | 20.31% |
| 1926-1950 | 6.08 | 2.92 | 26.70 |
| 1951-1975 | 8.82 | 7.40 | 13.15 |
| 1976-1980 | 12.11 | 11.56 | 15.84 |
| 1981-1985 | -3.47 | -3.12 | 13.59 |
| 1986 | -1.38 | -1.38 | 14.72 |
| 1987 | 5.50 | 5.50 | 34.06 |
| Source: Casewriter’s estimates based on data from the University of Chicago’s Center for Research in Security Prices. |
