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Essay Teletech Case

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1. How does Teletech currently use the hurdle rate? Teletech currently uses the hurdle rate in the assessment of the firm’s economic profit and NPV. The rate is based on an estimate of Teletech’s WACC. Currently, the hurdle rate for Teletech is 10.407%, using data in Figure 1. The case rounds this number to 10.41% 2. What are the segment WACCs for Teletech? What assumptions do you have to make to do these calculations? Using the data in Figure 1, we can calculate the WACC for the Telecom Services division and the Products and Systems division of Teletech. Telecom Services WACC is 10.404% while Products and Services WACC is 10.417%. Assumptions need to be made for the Cost of Equity. We used the corporate rate of 11.766% …show more content…

What are the implications of this view? What are the arguments for and against this view? Helen Buono states, “All money is green. Investors cannot know as much about our operations as we do. To them the firm is an opaque box; they hire us to take care of what is inside the box, and judge us by the dividends coming out of the box.” While I cannot refute that the color of money is of a green hue, I can critique that the cost of all money is not the same. Her “green money” statement does not factor in the risk involved in projects. This view implies that a single hurdle rate may deprive an under profitable division of investments in order to channel more funds into a more profitable division. While this is sound logic, certain situation exist where projects will go unfunded that do create value to the company. Helen also goes on to explain that if one segment’s hurdle rate is lower than the corporate hurdle rate, the company would be destroying shareholder value. The whole is a sum of its parts. What if Teletech has the opportunity to invest in a project that creates value at a hurdle rate below the firm wide 10.41%, but above the segment’s hurdle rate? This investment would create value in this segment, but in the strategy of one hurdle rate, the project would be overlooked. 5. Is Helen Buono right that management would destroy value if all of the firm’s assets were redeployed into only the telecommunications business segment? Helen

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