Case Marriot and Flinder Valves Essay

1. Why is Marriotts CFO proposing the Project Chariot?To improve the financial performance of the firm, by re-structuring the company in two separating activities to distinguish those that subscribe to a large fixed assets (Real estates get out power) and those with relative low amount of assets (Management services and others).By dividing in this way, the large amount of debt will go with the real estates ownership called Host Marriott Corp. (HMC), whereas the rest of activities will go to Marriott International (MII). Doing so, the valuate of the 2 firms combined will exceed this years book value, according to expectations (see vermiform process 1).2. Is the proposed restructuring consistent with managements responsibilities?It is, as it clearly separate the activities and focus on management services rather than owning the hotels. Furthermore, it improves the cash flows from the existing structure (see appendix 1), this improvement will allow HMC to meet its debt responsibil ities ( a total cash flow projected of $771 million in 1992 versus $478 million in 1991.The DCF in HMC presumptuous a worst case scenario will exceed current value of the firms assets $5,218 million versus $4,600 million, which indicates that the firm will improve as its assets will appreciate.3. The case describes two conceptions of managers fiduciary duty (page 9). Which do you favor the shareholder conception or the corporate conception? Does your stance make a going in this case?We agree upon favoring the shareholder conception, as this provides an improvement on cash flows, as this condition is met, other financial gaps can be covered, positive it revalues the total firm based upon the expected cash flows.In this particular case, by having this improvement on cash flow, debt responsibilities can be covered intimate HMC or by using the line of credit guaranteed by MII.On regards of the bondholders, the option is to increase the return as bonds will reduce the grade to chuck out bonds, for the calculation on DCF we assume a return of 10.81 assuming the highest risk for bonds. This action will compensate bondholders for the action.4. Should Mr. Marriott recommend the proposed restructuring to the board?Yes, as it increase the value of the combined firms, focus activities per company and provides better cash flows.