unleveraged B's of the restaurant industry representatives given in the case. However, the restaurants given for the calculation were mostly fast-food chains while Marriott operates rather middle-level restaurants. Today's WA Bu of the middle-class and upper-class restaurants appeared to be slightly higher indicating that the overall cost of capital for Marriott's restaurant division should be slightly higher. The cost of capital for the restaurant division is 14.85%.Cost of Capital for Contracting Services Division was also calculated through the above methods. However, the unleveraged Beta could not be calculated in the same way as for the two other divisions due to the absence of the comparable businesses from which the unleveraged Betas (Bu) could be obtained. Consequently, the Bu was back-factored from the relationship between the divisional Bu's (or Buc - contracting, Bul - lodging, and Bur - restaunrants ) and the company Bu (or Bum - Marriott) expressed in the following formula: Bum = Wl*Bul + Wr*Bur + Wc*Buc where W's are the respective weight factors of each divisional Bu. The Bu is by definition a measure of risk associated with equity alone. The company equity can be viewed as a portfolio in which the divisional equities are individual investments. The contribution of each investment's Beta to the portfolio Beta is based on the portion of that investment in the whole portfolio which in this case is the portion of a divisional equity in the company equity (Ed/Ec).The cost of capital for the contract services is 14.29%.Marriott's WACC is 13.73%. It is the weighted average of the cost of company debt and the cost of company equity - which is mathematically the same as the weighted-average of the divisional costs of capital weighted based on net identifiable assets.Marriott's WACC can be used to discount the multi-divisional projects that are impossible to evaluate by discounting their divisional components separatel...
