Marriott Corporation: The Cost of Capital
Company Background
Marriott Corporation (the Company) began operations in 1927 as a root beer stand. Throughout
the following sixty years, it flourished into one of the leading hospitality companies in the United
States. The Company has three major lines of business: lodging, contract services, and
restaurants. Lodging operations include full service, high-quality hotels, and suites. Contract
services provide food and services management to healthcare and educational institutions and
corporations. Marriott restaurants provided 16 percent of profits in 1987.
Financial Strategy
The four key elements of their financial strategy were:
• Manage rather than own hotel assets
• Invest in projects that increase shareholder value
• Optimize the use of debt in the capital structure; and
• Re-purchased undervalued shares.
Key Facts & Assumptions
• Marriott measured the opportunity cost of capital for investments of similar risk using the
