Other recommendations We recommend that the company should disclose more information. The TS will have a higher price per share, closer to the industry, as a result of the reduced investment risk surpassing the risk of higher leverage. Interest Background The Teletech Corporation operated in two business segments: See Exhibit 1 Second, our calculation shows that using two hurdle rates would result in higher economic profits of each segment as well as in total See Exhibit 3.
Though Teletech was a dominant service provider in the area, the company has been experiencing a downtrend of earning growth and stock prices due to keener competition and worse performance in certain segment.
For example, the Telecommunications services had lower risk, lower beta, thus it had lower cost of capital. Since different segment has different risk, when evaluating a project, the firm should classify the project into each segment and use an appropriate hurdle rate of the corresponding segment to calculate NPV of the project.
More transparency would narrow the gap between uninformed or small and informed or large investors, thereby lowering the cost of capital. The Products and Systems segment with the beta of 1. Thus, instead of using one hurdle rate calculated based on the corporate beta of 1. First, using WACC as a corporate hurdle rate is not appropriate since different segments have different investment risks.
Assuming that the company activities are transparent, the price per share could go even higher, as there will not be doubt that a profitable segment of the company will cover the unsatisfactory performance of another segment.
By October only one corporate hurdle rate of 9.
There was an ongoing debate if one common corporate hurdle rate should continue be used for valuation, or different hurdle rates which take into account the associated with the investments risk should be implemented. Hurdle rates recommendation We recommend that Teletech should use two different hurdle rates for both segments.
Higher profit would make company more attractive to investors. Problems statement Teletech has been using economic profit as a measure of value creation at the segment and business-unit level and net present value as a measure of value creation at the project level; and both these values were calculated using the hurdle rate.Daniel Kim BMGTSection Teletech Corporation Case Study Teletech Corporation is a company that provides telephone service to more than 7 million customers in the United States and its headquarters is located in Dallas, Texas.
Teletech should explain to Victor that the company understands where he is coming from and through looking into Teletech’s financial data, Victor is correct in his statement. The Products and Systems sector is slowing down the growth of Teletech and reducing the value within the company.
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Executive Summary The recommendation for Teletech Corporation is to change from a constant hurdle rate to the use of two risk-adjusted hurdle rates, one for each segment.
ASSIGNMENT TELETECH CORPORATION BY AMRITA SHARMA SEC B JAIN COLLEGE 62%+1.
What should be the hurdle rated for Teletech’s two business segments? Whether or not they should continue to use a constant corporate hurdle rate.8/ =*%.8/ = From the above we can understand that 5/5(1). Case 15 Teletech Corporation I.
Summary: The Teletech Corporation is a U.S company that provides integrated information movement and management. Teletech Case Case 15 Teletech Corporation I. Summary: The Teletech Corporation is a U.S company that provides integrated information movement and management.
It has two main business divisions, which are The Telecommunication Services, and The Products and Systems.Download