Marriott Corporation

Calculation of WACC

Mariott

Lodging

Contract Restaurant

WACC= (1-t)*rD(D/V)+rE*(E/V) t= rD= rE= D/V= E/V= Percentage of total revenues WACC=

44.10% 9.43 9.025 9.392 11.7871 16.19070148 15.03145287 60% 74% 40% 40% 26% 60% 100% 41% 46% 7.877873342 7.943113345 11.11906325

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