Finance

FIN3CSF Case Studies in Finance

Semester 2, 2013

Case Study 3: Estimating the Cost of Capital

Due date: 4.00 pm, Friday, September 27, 2013

Case 15: Teletech Corporation, 2005

Use the information in Case 15 to answer the following questions.

1. How does Teletech Corporation currently use the hurdle rate (2 marks / total 20 marks)?

2. Estimate the segment WACCs for Teletech (refer to Exhibit 1 (Exh. 1) in the Excel workbook, Case_15.xls). Note the points of judgment in the calculation (3/20).

3. Interpret Rick Phillips’s graph (see Figure 1, page 222). 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 (3/20)?

4. Do you agree that “all money is green” (p. 223)? What are the implications of that view? What are the arguments in favor? What are the arguments against (3/20)?

5. Is Helen Buono correct that management would destroy value if all the firm’s assets were invested only in the telecommunications segment? Why or why not? Prepare a numerical example to support your view (3/20).

6. Has Products and Systems (P+S) destroyed value? Provide evidence to support your opinion (3/20)?

7. What should Teletech say in response to Victor Yossarian (3/20)?

Supporting materials

• [B] Case 15, pp. 217-229.

• Supporting spreadsheet: Case_15.xls.

• Signed and dated Statement of Authorship (individual or group):

http://www.latrobe.edu.au/students/fbel/faculty-resources/forms

Submission

1. Length: 1,000 words (+/- 10%).

2. Use Times New Roman 12-point font.

3. A paper copy of your assignment (including text and printed spreadsheet, and signed/dated assignment cover sheet/Statement of Authorship [individual or group]) should be deposited in the nominated assignment box, Donald Whitehead Building, level two (2), by 4.00 pm, Friday, September 27, 2013.

4. An electronic version of the same assignment should be...