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Question: assume that the marriott has the following joint distribution with...

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Assume that the Marriott has the following joint distribution with the market return. Under Bad, Good and Great states (that come with the probabilities , /2 and 4, respectively) the market returns next year are (-5%, 15% and 35%) and the price of Marriott next year is expected to be, respectively: (S40m, $50m and S60m). Right now, Marriott has price of $44.00m and no debt. The risk free rate is 6.1 3%. You may find using a spreadsheet helpful in solving this problem.

Assuming the long-term historical market risk premium of 8.4%, find the appropriate discount rate for Marriott. Do not use the expected market return to calculate the market risk premium. e) fD Assume that CAPM holds. Would you recommend buying Marriots shares? We buy assets only if their return is not lower than one implied by their risk (measured with C APM). g) Marriott expects $30m cash flows per year growing at 1% forever, from one of its project. Assuming that the risk of the project is similar to the firms risk, what the value of the project.

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