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After evaluating the various components of the cost of capital and its divisional effects, we have determined that a firm-wide WACC should be used for all investment decisions.
Cost of Equity and Beta Considerations
We thought further research was needed to confirm the given beta. We regressed Marriott’s monthly returns against the Fama-French market monthly return for 1 year, 3 year, 5 year, and all Marriott’s monthly returns. All of the Fama-French numbers were similar to the given beta, especially the 5 year, at 1.16. The given beta used monthly, five year returns. We also ran S&P 500 regressions, but we dismissed them as they were significantly lower than the given and Fama-French betas...
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