Marriott

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             As exhibit 1 also shows, debt ratio has constantly grown from 0.58 in 1978 to 0.85 in 1987, and debt-equity ratio has grown from 1.39 to 5.62 in the same period. It is my assumption that this debt growth is a result of the company's shares-repurchasing policy, because they had to raise funds by long-term debt in order to pay such shares, as it is discussed later in this paper. .
             Even when debt and debt-equity ratios had grown, the company has been able to keep its interest coverage capability going from a 4.52 ratio in 1978 to 5.41 in 1987. Also showed in exhibit 1, net profit margin has been stable ranging 0.04 - 0.05 for the nine-year period before 1987, diminishing to 0.34 in 1987. It is my assumption that 1987 was not as successful a year as the others due the impact that external events may have had in the company such as the stock-market crash. .
             3. Common Stock .
             Marriott's common stock price grew constantly in the ten-year period 1978-1987, from $2.43 per share at the end of 1978 to $30 at the end of 1987 (see exhibit 2) at an average rate of 35% per year. Using the Myron Gordon's Growth Model for the ten-year period 1978-1987, Marriott's expected return of common stock ranges 22% - 23% annual, while the cost of common stock for the company ranges 12% - 18% (see exhibit 3 for calculations). .
             Marriott has the policy of repurchasing shares of its common stock when they believe that they are undervalued in the market. In 1987, Marriott repurchased 13.6 million shares for $429 million, which represents a price of $31.54 per-share. If they were to repurchase 30% of its common stock, it is assumed that they would have to pay more than the $31.54 per-share they paid last time because market price would continue growing as it had constantly grown before. The 30% of its common stock represents 35.64 million shares (118.8 million at the end of 1987 times 0.30) and that equals $1,124 million (at $31.54 per-share price).