Capm

Use the CAPM to compute the Cost of Capital for the company and for each of itdivisions.
The cost of capital for Marriott is 9.53%. Meanwhile the cost of capital for its divisions is the following:for lodging division is 8.02%; for restaurants division is 10.61%; and for contract services is 7.89%.

Calculate betas based on "proxies" and to lever them to adjust for capital structure.
Thebeta for each division was measured by calculating the lever beta using an average unlever beta of the proxy firms. First, we chose the companies in the same line of business of each division (lodgingand restaurant). Next, we used the equity beta of those firms to calculate unlever beta. After that, we used total sales of those companies to calculate a weighted average unlever beta of those proxyfirms.
Finally, we used the average unlever beta to calculate the beta of each division from the formula: Lever beta (ßL) = ßµ x [1+(1-t) D/E]. The proportion of debt and equity was from the marketvalue-target leverage ratios in Table A in page 4.

Determine the appropriate risk-free rate and market risk premium.
The appropriate risk-free rate is 4.58% which is the long term US government bondreturn from 1926-1987. In the other hand the appropriate risk premium is the spread between S&P 500 composite returns and long-term US government bond returns which is 7.43%

Focus on thechoice of time period to estimate expected returns.

Differentiate between the geometric and arithmetic average as a measure of expected return.
An arithmetic average is the sum of a series of numbersdivided by the count of that series of numbers. The reason you use an arithmetic average for test scores is that each test score is an independent event.
When it comes to annual investment returns,the numbers are not independent of each other. If you lose a ton of money one year, you have that much less capital to generate returns during the following years, and vice versa. Because of this...