...Teletech Teletech Corporation is split between two main business segment that include both Telecommunications Services as well as Products and Systems (P&S). Although the two segments provide different services to customers, Teletech has decided to apply a hurdle rate of 9.30% to all capital projects in the evaluation of the performance of business units. In my opinion, this is a mistake that is costing the company money. They should be using separate hurdle rates for the two different market segments because the markets they serve are different in terms of risk. In calculating the WACC for each segment, I did the following: Telecommunications Services Products and Systems WD 0.271 WD 0.092 WS 0.729 WS 0.908 RD 5.74 RD 7.47 RS 10.34 RS 11.99 Beta 1.04 Beta 1.34 RM-RF 5.5 RM-RF 5.5 RM 10.12 RF 10.12 RF 4.62 RF 4.62 1-T 0.60 1-T 0.60 WACC 8.47 WACC 11.30 I used the average beta of the Telecommunications Services Industry in calculating the WACC for the Telecommunications Services segment. For the Products and Systems segment, I used the average of the Telecommunications Equipment Industry and the Computer and Network Equipment Industry. I also made the assumption that RF and Rm for each segment would be equivalent to the Teletech as a whole. You Can see from the charts that the Products and Systems side has a significantly higher WACC than the Telecommunications segment, meaning there is less risk associated with the Telecommunications segment. ...
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...Minha recomendação para Teletech Corporation é a alteração de uma taxa de obstáculo constante para o uso de duas taxas mínimas de atratividade ajustados ao risco , uma para cada segmento. A taxa mínima fixada em 10,41% é derivado usando o WACC . Em 1995, os Serviços de Telecomunicações a uma taxa de 9,8% menor que a taxa mínima fixada, enquanto os produtos e sistemas responderam com 12%. A preocupação reside nos preços das ações da TeleTech , que não estão mantendo-se de acordo com os índices de mercado ou indústria . Com duas taxas diferentes, a empresa pode avaliar projetos em duas avaliações diferentes de riscos.. A indústria de serviços de telecomunicações tem como média do beta do capital próprio um valor de 0,84 . Esta é usada para calcular a taxa de atratividade ajustada ao risco para esse segmento. Atualmente, ele está superando a taxa de obstáculo ajustado ao risco e também é mais estável em comparação com os produtos e sistemas . Da mesma forma, calcula-se o segmento de Produtos e Sistemas com a mesma suposição exata de pesos iguais, chegando a um beta de valor 1,50. Apesar de ter um retorno sobre o capital superior ao WACC , a empresa está destruindo valor , investindo em projetos que estão apenas batendo a taxa mínima de 10,41%. Com uma taxa de atratividade ajustada ao risco , a empresa pode melhor avaliar os projetos , bem como prever como eles vão financiar cada um. Produtos e Sistemas é um segmento de maior risco de Serviços de Telecomunicações e estas taxas...
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...Analysis Teletech 2005 WACC and Hurdle Rate: Risk drives required returns and is a fundamental concept when determining whether or not a company is providing appropriate returns to its shareholders. Teletech’s policy was to use a uniform hurdle rate across segments. This policy works well if each potential investment has the same risk. Unfortunately for Teletech, investments differ in their level of risk and therefore in their required rates of return. To adequately assess potential investments, Teletech should implement a hurdle rate for each segment and potentially risk-adjust these hurdle rates for projects within each segment. As Teletech’s EVP of Telecommunications Services points out in his graph, a single hurdle rate for varying risk segments can be misleading and cause severe financial damage. Specifically it can lead to profitable projects being rejected and unprofitable projects being approved. In either case, shareholder value is not maximized. Exhibit 1 shows our WACC calculation for the Telecommunications Services (TS) and Product and Systems (PS) segments to be 8.5% and 11.7% respectively. Under Teletech’s single hurdle rate philosophy, projects in the TS segment would be rejected if ROC is projected to be below 9.3% even though they would be adding value if above 8.5%. Possibly even more detrimental, projects in the PS segment would be approved if ROC is above 9.3% even though they would be destroying value if below 11.7%. Additionally, the single...
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...To: Margaret Weston From: Bernard Ingles (Alex Lafond, Kenneth Harper, Mitchell McMahon) Subject: Theoretical Overview of Multiple Hurdle Rates Date: Executive Summary: Teletech Corporation’s needs to determine hurdle rates for each of the business’s two main segments: services and products and systems (P&S). Victor Yossarian has made valid points in regards to our misuse of company resources as well as our unsubstantial returns. In order to obtain enough capital for the upcoming years projects (roughly $2 billion), Teletech must re-evaluate current strategies in both segments and consider a spin-off of the Products & Systems segment. The company’s current 9.30% corporate-wide hurdle rate needs to be reconfigured in order to analyze potential project undertakings. Teletech should use hurdle rates that better represent the risks associated in each segment. The current hurdle rate is not maximizing shareholder and economic value due to the misallocation of company capital. In this case it is presumed that the firm is transparent and the value of the whole enterprise is simply the sum of its parts (MVdebt + MVequity). Analysis: Teletech must apply two different hurdle rates to accommodate for the risk in each segment. The WACC for the Services segment is 8.47% and the WACC for the Products and System segment is 11.40% (Exhibit 1). To estimate beta and capital structure weighting for the calculation of WACC, we used a comparable analysis for companies...
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...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. In Telecommunication Services division, it primarily provided many kinds of phone service to business and residential customers. In fact, it performed a network for 7 million customer lines throughout Southwest and Midwest. The division archived an increasing average rate of 3% on revenue from 2000 to 2004. On the other hand, the Products and Systems division was in charge of manufacturing equipment for computing and telecommunication purpose. In 2000, Teletech’s managers developed a plan to apply computing technology to the design of telecommunication equipment, which gave the company a better position in the telecommunication-equipment industry. Indeed, it increased net sales by almost 40% in 2004. However, it required a decent amount of investments in research and fixed assets in order to keep up with the mainstream development. On October 25th, Margaret Weston, the chief financial officer of Teletech Corporation, had received a letter from investor, Victor Yossarian. He wanted to address some issues and solutions that the firm currently had. First, the company had an error in using the firm’s resource. In fact, he pointed out that the Products and Systems division’s performance was not so good compared to TS division. The...
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...1) How does Teletech currently compute its hurdle rate and how does it evaluate risky projects? What is wrong with this method? Teletech computes it’s hurdle rate by averaging the past 10 years annual weighted average cost of capital (WACC) rates, and then “massaging” the result into a round percentage. This is not an ideal way to calculate the hurdle rate as it reflects rates of financing from the past when borrowing rates were in different ranges. Teletech evaluates risky projects by determining if the present value ratio is greater than 1 (PV inflows/PV outflows). Projects that had a ratio of greater than 1 are given further consideration but those that fall below 1 are summarily dismissed. The firms used a NPV ratio of 1 for very low risk projects, 1.2 for moderate risk projects, and 1.5 for high risk projects. 2) What are the merits of a divisional, as opposed to corporate-wide, hurdle rate system? Which do you recommend and why? * the merits of a divisional rather than corporate wide hurdle rate system reflect the different risks unique to the different market segments – there may be risks that one division encounters that should not be reflected when evaluating a project for the other division. Teletech corporation is divided into two main segments: Telecommunications Services and Products and Systems and both segments can be viewed as wholly different industries that are uncorrelated. It would be advisable to have two separate divisional hurdle rates...
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...Teletech Corporation, 2005 Teletech Corporation a company that provides telephone service to more than 7 million customers in the United States and its headquarters is located in Dallas, Texas. The Chief Executive Officer of Teletech Maxwell Harper received a letter by a billionaire by the name of Victor Yossarian about a purchase that he had made of 10 percent of stake early on. Victor stated on this letter that Teletech was no using its fund appropriately and they were not earning an acceptable return. Yossarian suggested that some things needed to change in order to fix the situation. One of the suggestions he presented was that Teletech needed to sell its products and Systems Department and concentrate on generating value for its shareholders through attaining greater returns. As this suggestion was made, the executives of Teletech were having talks about the hurtle rate being used by the company in order to evaluate their performance which obviously lead to returns. The hurdle rate that has been a very important part of the talks between executives of Teletech has been used to estimate the weighted average cost of capital. Exhibit 1 explains the hurtle rate of 9.30% after the calculations made by an investment banker. The calculations included after tax cost of debt, cost of equity, weight of debt and weight of equity which are all listed in exhibit 1 (attached file). For the following two sections, Telecommunications Services and Products and Systems weighted...
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...March 07, 2016 Case16 Overview The Teletech 2005 case was an interesting one. Teletech, historically, had been a telecommunications services company, providing telecommunication services to the southwest and Midwest. Then in 2000 they created an equipment manufacturing division for producing telecommunication equipment. That segment then acquired a leading computer workstation manufacturing firm as well. By 2004 the company market value was split with 25% from the product and services segment and 75% from the telecommunications services segment. Though both segment were not doing bad, the company overall was underperforming when compared to the other firms within their industry. So in 2005 a raider named, Victor Yossarian, bought a 10% stake in Teletech and demanded two seats on the board. Yossarian then sent a letter to Teletech’s CEO saying the firm was misusing resources and not maximizing shareholders wealth. Ironically the company’s returns were already under scrutiny internally. Most of the issues had to do with the company’s hurdle rate, which was used for NPV analysis and to evaluate performance. The firm was split between wanting to change to a risk adjusted hurdle rate and keeping the current policy. The current policy was to use a constant hurdle rate of 9.30% for all projects and that rate was based on the WACC for the corporation as a whole. So this lead me to a series of questions. What is the hurdle rate? How did Teletech apply it? What are the pros and cons...
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...Case 15 Version 2.1 Teletech Corporation, 1996 Teaching Note Synopsis and Objectives In January 1996, the chief financial officer of this telecommunications company must fashion a response to a raider who claims that a major business segment of this company should be sold because it is not earning a satisfactory rate of return. The case recounts the debate within the company over the use of a single hurdle rate to evaluate all segments of the company versus a riskadjusted hurdle-rate system. The tasks for the student are to resolve the debate, estimate weighted average costs of capital (WACCs) for the two business segments, and respond to the raider. Suggestions for complementary cases: “Nike Inc.” (case 13) gives an introductory exercise in the estimation of the cost of capital. “Coke vs. Pepsi, 2001” (case 14) offers the estimation of WACCs for two competitors and opportunities to reflect upon how business risk drives cost of capital. “Phon-Tech Corp.” (UVA-F-1161) is a simplified version of “Teletech Corporation, 1996” (case 15), excluding consideration of levered beta and segment capital structures. The case was prepared to serve as part of an introduction to estimating investors’ required rates of return. It would best follow one or two class sessions introducing techniques for estimating WACC. The numerical calculations required are light, though some of the subtleties about the use of risk-adjusted hurdle rates will require time for the novice to absorb. The...
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...)(9.6%) WACC = .0086 + .072 = 8.1% CAPM – Products and Systems Rf = 4.39% Beta = 1.4 Rm- Rf = (12%-4.39%) = 7.61% Cost of equity = 4.39% + 1.4(12%-4.39%) = 15.1% WACC = (75% )(4.48%) + (25% )(15.1%) WACC = .0336 + .0378 = 7.14% CAPM – Teletech Corporation WACC = 9.30% Conclusion: The decrease in the individual WACC’s prove that there is overall lower risk and should result in an increase in valuation of the firm. This is something that Victor Yossarian must have discovered and knows the company stock is undervalued. The cost of capital percentages used in our calculations where based on Exhibit 4 Debt-Capital-Market Conditions, October 2005. (Bruner Pg 231)The company’s current method of value-creation used hurdle rates and was used to calculate the WACC of Teletech. Management decision to accept the investments bankers’ calculation of the WACC of 9.3% is “split rated” and therefore strictly speculative. We are sure it was in the investments bankers’ best interest and not that of Teletech. This speculative WACC left room for error and Victor discovered it. Money is green but can be greener, especially when there is money left on the table and nobody is claiming it. As is the case with Teletech, in acquiring separate lines of credit for each of its segments not only will management but everybodypoor grammar will get a better picture and understanding of how the company is being run instead of just looking at the outside of the...
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...Read and Download PDF File Teletech Corporation Case Study Solution PDF Ebook Library TELETECH CORPORATION CASE STUDY SOLUTION Download: TELETECH CORPORATION CASE STUDY SOLUTION / PDF Teletech Corporation Case Study Solution in addition to the lessons as well as textbooks are basically 2 sides of the very same coin. The classes as well as textbook assist you construct a strong structure on which to be analyzed on. Teletech Corporation Case Study Solution on the other hand, allow you to place this expertise to practical usage. Teletech Corporation Case Study Solution allows you to create in all the relevant locations. The wonderful aspect of Teletech Corporation Case Study Solution are their cost. They are not horribly expensive and evaluating that against their worth, you could not actually pay for to be without them. They are excellent for bringing a context to the course and also aiding you establish your understanding of the training course as a whole. The other alternative which is much less preferable is to examine the program in a bit-by-bit way which is a danger when it pertains to evaluation day. Doing this is likely to leave gaps in your understanding of the program. Utilizing the Teletech Corporation Case Study Solution assists draw all this know-how together into a relevant context and also it is fundamental in developing a further understanding of the topic. One more fantastic aspect of Teletech Corporation Case Study Solution are that taking a particular...
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...Representative And Customer Service Representative Date of Birth : February 28, 1985 Nationality : FILIPINO Age : 30 Years Old Educational Attainment : Bachelor of Science in Public Administration Don Mariano Marcos Memorial State University San Fernando City, La Union, Philippines (April 2006) WORK HISTORY * More than five (8) years of extensive working experience in BPO industry involving Customer service skills. Developing and maintaining a productive relationship and interaction with all callers, while providing personalized, and consultative education and information. EMPLOYMENT HISTORY PERIOD COMPANY/PROJECT/POSITION/JOB DESCRIPTION MAY 25, 2015 Telstra powered by TeleTech to Present Five E-Com Center, Mall of Asia Complex, Pasay City. Technical Support Representative (TELSTRA /BIGPOND account) * Provides technical and network problem resolution to end-users (customers) by performing a question diagnosis while guiding users through step-by-step solutions, assisting with navigating around application menus and troubleshooting email issues. * uninstalling/reinstalling basic software applications, verifying proper hardware and software set up, power cycling equipment, * Interact with customers to provide and process information in response to inquiries, concerns, and requests about products and services; * Gather customer’s information and determine...
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...Teletech Case After careful review of the Teletech case I think that Rick Phillips thought on the method to calculate hurdle rate or WACC is the most aligned with industry standards and would be the most financially beneficial to the company overall. The current method that Teletech Corporation is using for hurdle rate is an overall average for the company; all segments combined using an averaged beta for the company, regardless of the risk of each division. If the companies risk level was very similar for each division this would be an appropriate method per industry standards, but due to the varying risk with each division the hurdle rate should be calculated separately for each division and financial decisions for capital investment based upon these hurdle rates. If you break the hurdle rates out for each division it shows that the Services division has a hurdle rate of 8.8%, using market value available date and the Products and Systems division has a hurdle rate of 10.4%, using market value data of similar risk companies. Comparing these to the averaged company hurdle rate of 9.3% shows that the services division’s capital projects would bring a higher rate of return to the company than the P&S divisions; even though this would not be seen if you were only looking at an average. The P&S division projects could actually have negative returns based on the division hurdle rates. This is what Rick Phillips was trying to express by presenting his graph of constant...
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...founded a company called Tokyo Tsushin Kogyo[12][13] (Tokyo Telecommunications Engineering Corporation). The company built Japan's first tape recorder, called the Type-G.[12] In 1958 the company changed its name to "Sony". Name[edit] When Tokyo Tsushin Kogyo was looking for a romanized name to use to market themselves, they strongly considered using their initials, TTK. The primary reason they did not is that the railway company Tokyo Kyuko was known as TTK.[12] The company occasionally used the acronym "Totsuko" in Japan, but during his visit to the United States, Morita discovered that Americans had trouble pronouncing that name. Another early name that was tried out for a while was "Tokyo Teletech" until Akio Morita discovered that there was an American company already using Teletech as a brand name.[14] The name "Sony" was chosen for the brand as a mix of two words. One was the Latin word "Sonus", which is the root of sonic and sound, and the other was "Sonny", a common slang term used in 1950s America to call a boy.[5] In the 1950s Japan "sonny boys", was a loan word into Japanese which connoted smart and presentable young men, which Sony founders Akio Morita and Masaru Ibuka considered themselves to be.[5] The first Sony-branded product, the TR-55 transistor radio, appeared in 1955 but the company name did not change to Sony until January 1958.[15] At the time of the change, it was extremely unusual for a Japanese company to use Roman letters to spell its name instead...
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...Business Process Outsourcing Introduction Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain. BPO is typically categorized into back office outsourcing - which includes internal business functions such as human resources or finance and accounting, and front office outsourcing - which includes customer-related services such as contact center services. BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is contracted to a company's neighboring (or nearby) country is called near shore outsourcing. Often the business processes are information technology-based, and are referred to as ITES-BPO, where ITES stands for Information Technology Enabled Service. Knowledge process outsourcing (KPO) and legal process outsourcing (LPO) are some of the sub-segments of business process outsourcing industry. In 2010, the Philippines surpassed India as the largest business process outsourcing industry in the world. After growing 20 per cent in 2012, the BPO industry of the Philippines is estimated to gross revenue of upwards to $25 billion by 2016. By these estimates, the Philippines' BPO industry will account for approximately 10 per cent of the nation's GDP. History...
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