In April 1988, Dan Cohrs, vice president of project financing at Marriott Corporation, was preparing his annual recommendations for minimum rates for each of the company's three divisions. Capital projects at Marriott were selected by discounting the appropriate cash flows at the appropriate minimum rate for each division. In 1987, Marriott's sales grew 24% and its return on equity (ROE) stood at 22%. Sales and earnings per share doubled. over the previous 4 years, and the operational strategy aimed to continue this trend. Marriott's 1987 annual report stated: We intend to remain a leading growth company. This means aggressively developing suitable opportunities in our chosen business sectors: lodging, contract services and related businesses. In each of these areas, our goal is to be the preferred employer, preferred supplier and most profitable company. Cohrs acknowledged that divisional minimum yield rates at Marriott would have a significant impact on the company's financial and operational strategies. Typically, increasing the minimum rate by 1% (for example, from 12% to 12.12%) decreased the present value of the project's inflows by 1%. As costs remained roughly fixed, these changes in the value of inputs translated into changes in the net present value of projects. Figure A shows the substantial impact of minimum rates of return on the anticipated net present value of projects. If minimum rates increased, Marriott's growth would be reduced because once-profitable projects would no longer meet minimum rates. Conversely, if hurdle rates decreased, Marriott's growth would accelerate. Marriott also considered using hurdle rates to determine incentive compensation. Annual incentive compensation represented a significant portion of total compensation, ranging from 30% to 50% of base salary. The criteria for awarding bonuses depended on specific job responsibilities, but often included income level, managers' ability to meet budgets, and overall company performance. There was, however, some merit in basing incentive compensation, in part, on a comparison of the division's return on net assets and the division's market-based minimum rate of return, which would make executives more sensitive Marriott's financial strategy and capital market conditions. The company began in 1927 with J. WillardMarriott's root beer stand. Over the next 60 years, the company grew into one of the leading lodging and restaurant companies in the United States. Marriott's profits in 1987 were $223 million on sales of $56.5 billion. See Exhibit 1 for a summary of Marriott's financial history. Marriott had three main lines of business: lodging, contract services, and restaurants. Table 2 summarizes its sector data.