Teletech Questions

Case 16 – Teletech Corporation

Illustrative Questions

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 case Figure 2). 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?

Additional case dimensions:

1. What are Rick Phillips’s arguments for the use of the risk-adjusted hurdle-rate system? What are Buono’s arguments against the system?

2. Would allocating capital on the basis of the risk-adjusted hurdle-rate system create or destroy value?

3. What are the WACCs of the two segments? Has Products and Systems destroyed value? What about Telecommunications Services?

4. Do you have any other concerns about Teletech’s possible implementation of a risk-adjusted hurdle-rate system?

5. What should Teletech say to Phillips? What should the company say to Buono?