Teletech

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Teletech Corporation

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Table of contents

Introduction…………………………………………………………………………………………….P. 2

Question 1……………………………………………………………………………………………….P. 2

Question 2……………………………………………………………………………………………....P. 2-3

Question 3…………………………………………………………………………….…………….…..P. 3-4

Question 4…………………………………………………………………………….…………….…..P. 4-5

Question 5…………………………………………………………………………….…………….…..P. 5

Question 6…………………………………………………………………………….…………….…..P. 6

Question 7…………………………………………………………………………….…………….…..P. 6

Conclusion………………………………………………………………………………………………P. 7

Exhibit 1…………………………………………………………………………………………………P. 8

Exhibit 2…………………………………………………………………………………………………P. 9

Exhibit 3…………………………………………………………………………………………………P. 10

Figure 1……………………………………………………………………………………………………P. 11

INTRODUCTION

Teletech Corporation operates with two main business segments: Telecommunications Services and Products & Systems. Telecommunications provides various telephone services to business and residential customers while Products & Systems focuses on manufacturing computing and telecommunications equipment. Currently, Teletech uses only one hurdle rate in the assessment of the firm’s economic profit and NPV. However, billionaire Victor Yossarian acquired a 10% stake in Teletech and addresses the issue of the firm’s mishandling of resources and not earning a sufficient return.

1. How does Teletech Corporation currently use the hurdle rate?

Teletech Corporation’s current hurdle rate is 9.30%. It uses the rate for all projects and departments.

2. Please estimate the segment WACCs for Teletech (see the worksheet in case Exhibit 1). As you do this, carefully note the points of judgment in the calculation.

In order to estimate the WACC for two segments of Teletech Corporation, we first need to find proxy firms. For telecommunications services segment, we have nine proxy firms and we unlevered all of their equity beta. We unleverd their beta with 40% tax rate and their market value of...