1
Mid-term Project
(Due date: March 8, Monday)
Total Points: 20 points
Benefit of Sustainability: Cost saving approach
Marriott’s environmental commitments are aiming to further reduce energy and water consumption
by 20%. To meet the goals, Marriott Marquis initiated a long-term project to reduce waste by 20%.
(We here refer that maximum conversion rate, . is 20%)
Considerations for cost analysis
1. Annual cost of waste for Marriott Marquis (per hotel): The following table is to illustrate
Marriott Marquis’s average monthly weights for recycling, trash, compost for recent years.
All weights are marked in tons. Recycling and trash amounts are measured in 35-yard
compactors. It costs $150 to haul a 35-yard compactor plus $59 per tonnage. Compost
amount is measured based on a 35-gal container. 22.5 containers are required for tonnage.
It costs $6.66 per a recycled container with delivery costs of $59 per tonnage. The 35-yard
compactor can be shared for recycling and trash. (Assume that recycling and trash &
compost treatment process is implemented once a month.)
Table: Marriott Marquis’ weights for recycle, trash, and compost
Month Recycle Trash Compost Total
July – 95.52 – 95.52
August – 86.5 – 86.5
Sept 2.89 84.93 – 87.82
Oct 9.33 110.57 – 119.9
Nov 17.47 74.41 – 91.88
Dec 5.38 59.93 – 65.31
Jan 17.82 70.69 – 88.51
Feb 9.85 85.21 – 95.06
March 19.83 96.82 6.35 123
April 11.89 87.33 19.31 118.53
May 26.11 91.61 6.85 124.57
June 17.53 85.93 16.05 119.51
Total 138.1 1029.45 48.56 1216.11
2
2. Expected Cash Flows: Let’s denote total annual cost savings (recycling, trash and compost)
for Marriott Marquis as , discount rate as , and maximum conversion rate is
γmax ( ) .
Suppose annual conversion rate, ( ), is increasing linearly each year over 10 years.
That is, = 0.1 in the first year, 0.2 in the second year, ⋯, in the last (10th)
year.
The expected cash flow ( ) is × ( × 0.1) in the first year, × ( × 0.2) in
the second year, ⋯, × ( × 1) in the last (10th) year.
3. Discount rate: According to the effective yield of the Bank of America Merrill Lynch US
Corporate 7-10 Year Index that compiles all securities with a remaining term to maturity
of greater than or equal to 7 years and less than 10 years, 10-year corporate bond yield is
3.85%.
4. Typical project length: Many of Marriott’s hotels have a form of committees or
independent CSR work groups. Each work group has launched and is currently working on
relevant projects as part of enhancing business sustainability with typical project lasting
about 10 years.
5. Net Present Value (NPV) and Internal Rate of Return (IRR): NPV determine the sum of
the present values of cash inflow and outflows over the period of project. NPV calculate
an estimate of the profitability of a project or investment. The formula can be written as
i. = − 0 + 1
1+ + 2
(1+ )2 + ⋯ +
(1+ ) = − 0 + ∑
(1+ )
=1
ii. ℎ − 0 + ∑
(1+ )
=1 = 0
where − 0 is initial cost (investment), is cash flow, r is discount rate, and T is time.
The NPV method is a direct measure of the dollar contribution to the investors,
while the IRR method provides the return on the original money invested. NPV and IRR
method can give a conflicting ranking of projects when IRR method is compared to NPV
