Business Homework Solutions
Problem
#13881

Cost of Debt (WACC)/2741

I am Calculating the Divisional Cost of Debt for the Marriot corporation. They have two types of debt a floating rate and fixed rate. I know the floating rate is tied to a one year us government bond, but I don't know why. I think the fixed rates are based on a 30 year bond and 10 year bond interest rates for hotels and restaurants respectively because of the nature of the business and types of assets owned by the division.

In the case problem the rates for a 1, 10, and 30 year T-Bond is given. I need to add these rates to the hotel's debt premium then to compute weighted average of the fixed and floating rate debt to find the cost of debt.

Just to clarify
Q:
Why use the 1 year T-Bond for the floating rate?

Solution
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