Teletech Corporation

Teletech Corporation, 2005

(Financial Management – FNC 511M)

1 October 2011

I. STATEMENT OF THE PROBLEM

Teletech has been using economic profit as a measure of value creation at the segment and business-unit level and net present value as a measure of value creation at the project level; and both these values were calculated using the hurdle rate. The main problem faced by Teletech was that the company leaders had to decide what hurdle rate(s) should be used for evaluating performance and budgeting of each segment; and what would be the future of the P&S unit, having in mind the accusatory letter of the new 10% stakeholder, Victor Yossarian.

What should the hurdle rates be for Teletech’s two business segment, Telecommunications Services and its newer Products and Systems unit?

II. OBJECTIVES

a) To incorporate the concept of Cost of Capital

b) To response effectively to Yossarian’s assertions about Teletech’s returns.

c) To prepare summary of analysis that will aid the company’s decision in using appropriate hurdle rates for the two segments and the corporation as a whole.

d) To be able to qualify Yossarian’s assertions that the Products and Systems segment is underperforming.

e) To translate Teletech’s mission statement into practice.

III. CASE FACTS

a) Teletech Corporation, headquartered in Dallas, Texas, defined itself as a “provider of integrated information movement and management

b) Teletech Corporation operated in two business segment: Telecommunications Services (TS) and Products and Systems (P&S)

c) TS provided long distance, local and cellular telephone service to business and residential customers throughout the Southwest and Midwest.

d) Revenues in this segment grew at an average of 3 percent over 2000-2004. The firm had been a leading bidder for cellular telephone operations and for licenses to offer personal communications services (PVC). In addition, the firm had...