9B01N019

TELUS: THE COST OF CAPITAL

Professor Stephen R. Foerster revised this case (originally prepared by Professors James E. Hatch and David
C. Shaw) solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
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Copyright © 2001, Ivey Management Services

Version: (A) 2002-04-16

OVERVIEW

Barb Williams and Rick Thomas, two managers from service firms, were attending a weeklong executive education course at a well-known business school in
November 2001. Both had read an article dealing with the cost of capital as preparation for the next day’s classroom session. As they vigorously discussed the concept, it became clear that they had several differences of opinion. Their assignment was to calculate the cost of capital for Telus Corporation (Telus).
Telus was a leading telecommunications company providing a variety of data, voice, and wireless services to both businesses and consumers. The data they gathered are presented in Exhibits 1 to 5.
Rick: What we really want to know is the hurdle rate that Telus should use for its capital investment projects.
Barb: Yes, and we should decide whether the rate ought to be different for
different