Case 15 & Case 19 Teletech & Target Corporations

CASE 15 Teletech Corporation

Questions for Advance Assignment

This case complements the seminal extension of mean-variance analysis to corporate finance by Mark E. Rubinstein, “A Mean-Variance Synthesis of Corporate Financial Theory,” Journal of Finance, January 1974. It is not necessary, however, that this article be assigned to students as collateral reading with the case.

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

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.

3. Interpret Rick Phillips’s graph (see Figure 2 in the case). How does the choice of constant versus risk-adjusted hurdle rates affect the evaluation of Teletech’s two segments? What are the implications for Teletech’s resource-allocation strategy?

4. Do you agree that “all money is green”? What are the implications of that view? What are the arguments in favor? What are the arguments against it?

5. Is Helen Buono right that management would destroy value if all the firm’s assets were redeployed into only the telecommunications business segment? Why or why not? Please prepare a numerical example to support your view.

6. Has Products and Systems (P+S) destroyed value? What evidence or illustrations can you give to support your opinion?

7. What should Teletech say in response to Victor Yossarian?

Case 19 Target Corporation

Questions for Advance Assignment to Students

1. Be prepared to describe and critique Target’s capital-budgeting system. Give specific consideration to the role of the real-estate managers and the makeup of the CEC.

2. Which of the five CPRs should Doug Scovanner accept? Be prepared to explain how each of the considerations that follow influenced your decision:

a. NPV and IRR

b. Size of the project

c. Cannibalization of...