Teletech Essay

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Nick Jordan, Lei Zhao, Shuying Zhang, Feng He Finance 675 Teletech Case Study February 7, 2013 Executive Summary This analysis was conducted with the purpose of determining whether or not Teletech should employ two separate hurdle rates for its Telecommunications (TS) and Products & Services (PS) divisions or continue its policy of a one firm-wide hurdle rate for the evaluation of future capital projects. The analysis concluded that Teletech should apply two separate hurdle rates for each division on the basis that the nature of each division is fundamentally unique. By identifying and examining industry peers it is evident that a single hurdle rate is ineffective as the criterion for firm-wide project acceptance. Our findings provide sufficient appropriate evidence in support of adopting a dual-hurdle rate capital decision making policy. The recommended hurdle rates for the two divisions are 8.53% for the Telecommunications division and 11.38% for the Products and Services division. We believe that the adoption of this dual-rate policy will more accurately reflect each division’s cost of capital resulting in an optimally effective capital investment decision making process. Background Due to recent controversy regarding Victor Yossarian and lagging stock performance, we have conducted a financial analysis to determine whether the current value creation model of Teletech is optimally designed to increase shareholder wealth. Teletech currently operates under two divisions, Telecommunications and Products and Services. Currently, Teletech employs a single corporate hurdle rate to all project proposals without consideration of the divisional segment from which it originates. However, this policy may distort the risk/return evaluation of investment opportunities. Since it is critical that management has

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