Case Studies in Finance, Managing for Corporate Value Cration 7th Ed

Questions for Case 16 Teletech

1. How does Teletech Corporation currently use the hurdle rate? The use the hurdle rate to centralize or consolidate their borrowing rate for capital.

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. (see attached spread sheet)

3. Interpret Rick Phillips's graph (see Figure 1 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? It under values the stock, therefore investment bankers are making out. The implications in the resource allocation is that with the segments being constant created the resources to be spread evenly when that shouldn’t be the case.

4. Do you agree with Helen Buono that "all money is green”? What are the implications

of that view? What are the arguments in favor? What are the arguments against it?

Money is green but can be greener, especially when there is money left on the table

and nobody is claiming it. The point being made that yes money is greener but they

are leaving money on the table particularly in stock. You could argue that by

leaving the combination rate it allows the company more control over where their

capital money is being spend. The agreement against it is that they are

undervaluing the company which in turn can turn investors away.

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?