Question

Thomas Mapother is a corporate finance executive at Hilton, the hotel company. His CEO wants to...

Thomas Mapother is a corporate finance executive at Hilton, the hotel company. His CEO wants to invest in a chain of department stores and wants to use Hilton's weighted average cost of capital (WACC) in the evaluation process. What should Thomas advise?

Select one:

a. Thomas should advise that Hilton's WACC should not be used under any circumstances because a hotel company is quite different from a chain of department stores.

b. Thomas should advise the CEO to leave corporate finance matters to Thomas and his team and concentrate on strategy.

c. Thomas should advise that there is no problem using Hilton's WACC in the analysis because most companies use the WACC this way.

d. Thomas should advise that the WACC for Hilton could be used as long as some adjustments are made to allow for the fact the department store business is quite different from the hotel business.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The answer is

d. Thomas should advise that the WACC for Hilton could be used as long as some adjustments are made to allow for the fact the department store business is quite different from the hotel business.

When a different business line is started, its risks and returns are quite different from other lines. Hence, WACC cannot be used for evaluating the other business.

Adjustments are to be made to WACC so that right rate is used to evaluate proposals.

Generally, cost of capital of firms in the same business are considered for this purpose.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Susan Thomas is the vice president for human resources at National Products, a manufacturing company with...
Susan Thomas is the vice president for human resources at National Products, a manufacturing company with 500 employees. The company has an opening for a general manager in one of its product divisions, and the president asked Susan to review the backgrounds of three department managers who are interested in being promoted to this position. She is expected either to recommend one of the three internal candidates or to begin recruitment of external candidates. The internal candidates are Charley Adams,...
Case Study B.R Investments is a reputed finance company having 15 branches in different part of...
Case Study B.R Investments is a reputed finance company having 15 branches in different part of the country. In the home office there are more than 200 employees. This company has a performance rating under which the employees are rated at six months intervals by a committee of two executives. Graphic scales have been used as means of appraisal. The qualities considered are responsibility, initiative, and interest in work, leadership potential, co-operative attitude and community activity. After the performance is...
Julie Gates, a recent Finance graduate, has been hired as a financial analyst in Macroworld’s corporate...
Julie Gates, a recent Finance graduate, has been hired as a financial analyst in Macroworld’s corporate finance department. Macroworld is a large computer software and sometimes hardware & electronic gadget company. Julie’s first major assignment has her involved with the analysis of three different capital budgeting projects. The first involves opening for the first time a chain of boutique Macroworld Shoppe retail stores where customers could buy Macroworld products & third-party accessories and bring in their Macroworld software equipped computers...
case study: B.R Investments is a reputed finance company having 15 branches in different part of...
case study: B.R Investments is a reputed finance company having 15 branches in different part of the country. In the home office there are more than 200 employees. This company has a performance rating under which the employees are rated at six months intervals by a committee of two executives. Graphic scales have been used as means of appraisal. The qualities considered are responsibility, initiative, and interest in work, leadership potential, co-operative attitude and community activity. After the performance is...
The Harborside Inn, located on the New England coast, is a 125-room luxury hotel. The inn's...
The Harborside Inn, located on the New England coast, is a 125-room luxury hotel. The inn's guests are predominantly upper middle class in that the going rate is about $100 per day per person. The hotel grounds include 30 acres of lawns and gardens. Their nine-hole golf course winds its way around a picturesque trout pond. The hotel grounds were meticulously cared for and yet efforts at cultivating beauty could not match the natural beauty which was so much a...
Gender Bias in the Executive Suite Worldwide The Grant Thornton International Business Report (IBR) has described...
Gender Bias in the Executive Suite Worldwide The Grant Thornton International Business Report (IBR) has described itself as "a quarterly survey of business leaders from across the globe … surveying 11,500 businesses in 40 economies across the globe on an annual basis." 1 According to the 2011 IBR, the Asia Pacific region had a higher percentage (27 percent) of female chief executive officers (CEOs) than Europe and North America. Japan is the only Asia Pacific region exception. The report further...
Task #2: Tomewin Water Company Role and Context You are a newly-hired financial analyst with Tomewin...
Task #2: Tomewin Water Company Role and Context You are a newly-hired financial analyst with Tomewin Water Company (TWC), a company operating in most states of Australia, which specialises in bottling purified water sourced from Tweed Valley springs. TWC is considering adding to its product mix a ‘healthy’ bottled water geared towards children, aimed at improving both its business focus and the return to shareholders. Scenario TWC currently has 30,000,000 ordinary shares outstanding that trade at a price of $41...
Four Case Studies on Corporate Social Responsibility: Do Conflict Affect a Company's Corporate Social Responsibility: Apple...
Four Case Studies on Corporate Social Responsibility: Do Conflict Affect a Company's Corporate Social Responsibility: Apple Inc. Apple’s profile Apple Inc. (hereafter Apple) was established in 1977 and is registered on the NASDAQ Global Select Market exchange. According to its Form 10-K ‘Apple designs, manufactures and markets mobile communications, media devices, personal computers and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications’. Its products are sold through...
Organizing Organizing is an important task of managers. Once the organization’s goals and plans are in...
Organizing Organizing is an important task of managers. Once the organization’s goals and plans are in place, the organizing function sets in motion the process of seeing that those goals and plans are pursued. When managers organize, they’re defining what work needs to get done and creating a structure that enables work activities to be completed efficiently and effectively by organizational members hired to do that work. As Starbucks continues its global expansion and pursues innovative strategic initiatives, managers must...
You are to prepare a two-page (single-spaced) paper based on the case assigned. The case is...
You are to prepare a two-page (single-spaced) paper based on the case assigned. The case is listed below. Case Note Format Your case analysis should be in the format of a two page (not counting the reference section) single-spaced Executive Summary. The report should follow the following format in sentence/paragraph form using APA format to cite sources. You are required to cite the textbook and at least one outside source from an academic peer-reviewed article. 1. Introduction of Firm 2....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT