Responses from MBA and finance majors are preferred.
Please include all your financial analysis and numerical results.
Note that the actual case is only 8 pages. The remaining pages are supplementary information.
Using the attached case study answer the following questions
a. Should Marriott move forward with Project Chariot.
b. What are the financial benefits to moving forward
c. Are there any negative results for investors (is shareholder wealth created or destroyed or not changed)
First some important analysis:
The current ratio of Marriott Corporation 1023/1135 = 0.90 that is much lower than the industry norm of 2. Which means the company has problems meeting its current liabilities.
The quick ratio = 36+ 524/1375 = 0.493392 which is much below the norm of 1:1. This means that liquid assets with the corporation are inadequate.
The debt to equity ratio in the proposed MII = 400/800 = .5 !
The external - Internal equity ratio of HMC = 2000/600+200 = 2.5.
Please note that the acceptable level is 2. Which means that the proposed company is in a position to raise further capital.
The proprietary ratio: MII 800/2600 =. 3076 which is close to industry norm of .33.
HMC = 200+600/4600 = 0.1739.
Capital Gearing Ratio for MII = 800/400 =2 exactly the industry norm.
HMC = 600/200 +2000 = 0.272
Operating Ratio for 1991= 7853/8331x 100 =94.262.
" for 1989= 7232/7536 x 100 = 95.966.
Net Profit Ratio for 1989 =117/7536 x100 = 1.55
Net Profit Ratio for 1991 =82/8331 x 100 = 0.98
This apart the figures give us that the EBIT will be 259 for MII and 123 for HMC.
The high Interest burden of 210 will be borne by HMC and 25 will be borne by MII.
The preferred stocks will remain with HMC.
Profit times interest will be 10.4 for MII and .59 for HMC.
Should Marriott move forward with Project Chariot.
Yes, because it provides Marriott to raise further capital from the market. However, it is clear that the company is making profits from the services that it is providing but the Jr. Marriott is an adventurous person and is interested in using the extra capital for purchasing of competitors properties. This amounts to reckless speculation on real estate and has the potential of pushing Marriott further into debt.
The proposal which Bollenbach has provided gives the new company a tailor made financial structure designed to raise captal from the market. ...