Question

Recall the HBS Case on Marriott​ Corporation, the levered equity beta was given as 0.97 for Marriott as a whole. This beta might not be appropriate to calculate​ Marriott’s cost of equity because its target debt ratio​ (60%) going forward is quite different from its actual historical debt ratio​ (40%). Given that Marriott is planning to increase its leverage​ ratio, what should be the appropriate beta to be used in CAPM to calculate​ Marriott’s cost of equity in​ future?

A.

1.97

B.

1.94

C.

1.43

D.

1.00

E.

1.46

Answer 1

Please refer to the image below for the solution-

Do leave an upvote if you find this helpful. In case of any doubt please let me know in the comment section.