Case 16 Teletech

In: Business and Management

Submitted By bpierce0
Words 1230
Pages 5
Benjamin Pierce
FINA 479
Monday, March 07, 2016

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 of risk adjusted hurdle rates? What are the risked adjusted rates? What should Teletech do in response?
What is the Hurdle rate? How is Teletech applying it?
According to Investopedia, a hurdle rate is the minimum rate of return on an investment required by management. In this case, the hurdle rate is the discount rate used for assessing both Teletech’s…...

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