1.) Currently Teletech Corporation uses 9.30% as their hurdle rate and satisfied with the intellectual relevance of a hurdle rate as an expression of the opportunity cost of money by the managers. As a result the firm’s share prices are inactive. Their price-to-earnings ratio is also below investor’s expectation in comparison to the company’s risk. The relationship between risk and return is important to take into consideration. The constant hurdle rate results in a flat line and doesn’t correlate risk with return. With nearly $2 billion being invested in upcoming capital projects, the discount rate to be used within the firm needs to be more accurate, account for risk, and not destroy shareholder’s value. Currently the firm is not
…show more content…
Corporate hurdle rate -2.5934 and 7.4182 billion. Risk adjusted hurdle rate 3.7838 and 2.5817 billion. Segments’ Hurdle rate 8.81% and 10.41%. ROC 9.10%, 11% and 9.58% (9.10%*75%+11%*25%, Teletech). 6.) No, the Products and Systems division wouldn’t destroy the company’s value. In fact, from my calculations up above the Products and Systems division would add value to the company because its return is at 11% which is greater than the hurdle rate of 9.3% which shows that this segment is valuable.
7.) Teletech should responded to Victor Yossarian by telling him that they would have no problem with providing two seats on the company’s board of directors that he demanded, but he must understand that their entire purpose as a company is to provide their customers the best superior products and systems to complement the best telecommunication service. As a company, Teletech goes to extreme lengths to ensure that they provide their partners and shareholders with the best possible returns, even with the ever-changing market and increasing regulations. There are experts already in place as a team in the company that are continuously monitoring the ever-changing market and trying to work towards achieving the goal of getting market-level returns on all the company’s investments. Each division (Telecommunication Services and