Case 16 Teletech

In: Business and Management

Submitted By bpierce0
Words 1230
Pages 5
Benjamin Pierce
FINA 479
Monday, 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 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…...

Similar Documents

Case 16

...workers see the production lines as a whole so they can improve it because they are exceptionally knowledgeable. When a cell phone manufacturer uses Kaizen, all their workers should be exceptionally knowledgeable. So the workers can find the way to improve the production lines and to be more productivity. Moreover, if they find something wrong in the line, they can stop it which can decrease the rates of low quality products. When an elementary school uses Kaizen, it can improve their management of the school. All faculties can think about a better way to manage the school. How to improve the quality of education in the school, how to protect students from accidents can be the responsibilities of all staffs in the school. In this case, the school can be operated in a more productive way. When a local post office uses Kaizen, they can improve their speed to deliver mails and the rate of wrong delivered can be much lower. People in the post office might think about a better operation way of the post office under Kaizen 2. Do you believe that a U.S. automaker would keep auto assembly employees on the payroll when the line is stopped? Use Hofsede's five dimensions of value differences to explain your answer. I don't believe U.S. automaker would keep auto assembly employees on the payroll when the line is stopped. Under Hofsede's five dimensions of value differenced and from the textbook, we can know that America culture value individualism which suggests......

Words: 663 - Pages: 3

Teletech

...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......

Words: 893 - Pages: 4

Integrated Case Application 16-34

...Pinnacle Manufacturing INTEGRATED CASE APPLICATION 16-34 Conchata Rouse (a,b,and g) Adam Mouhaumd(c,d,e, and f) ACCT 444 Profession Leonard Franklin 10/20/2012 a. List those relationships, ratios, and trends that you believe will provide useful information about the overall reasonableness of accounts payable. You should consider income statement accounts that affect accounts payable in selecting the analytical procedures. We have analyzed Pinnacle Manufacturing balance sheet dated December 31, 2009 to provide a fairly unqualified opinion. We plan to list some relationships, trends, and ratios that will offer an overall view of the company accounts payable liabilities. We have selected several analytical procedures that are applicable to Pinnacle Manufacturing current accounts payable liabilities. • Evaluating list of accounts payable for unusual, non-vendor, and interest-bearing payables. • Comparing individual accounts payable with previous years. To gain full knowledge of Pinnacle Manufacturing accounts payable operations we conducted a horizontal trends analysis to compare changing in the accounts payable operations from 2007-2009. The company’s accounts payable trends had consistent increases 2007-2009. Subsequently, there were not significant changes to Pinnacle Manufacturing accounts payable trends to warrant further investigation of the accounts payable. ANALYTICAL PROCEDURES—RATIO ANALYSIS FORM CLIENT NAME: ......

Words: 1049 - Pages: 5

Teletech Case

...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......

Words: 478 - Pages: 2

Case Analysis 16

...Case 16-2 Brent Bonnin begins his senior year of college filled with excitement and a twinge of fear. The excitement stems from his anticipation of being done with it all—professors, exams, problem sets, grades, group meetings, all-nighters . . . The list could go on and on. The fear stems from the fact that he is graduating in December and has only four months to find a job. Brent is a little unsure about how he should approach the job search. During his sophomore and junior years, he had certainly heard seniors talking about their strategies for finding the perfect job, and he knows that he should first visit the Campus Career Planning Center to devise a search plan. On September 1, the first day of school, he walks through the doors of the Campus Career PlanningCenter and meets Elizabeth Merryweather, a recent graduate overflowing with energy and comforting smiles. Brent explains to Elizabeth that since he is graduating in December and plans to begin work in January, he wants to leave all of November and December open for interviews. Such a plan means that by October 31 he has to have all his preliminary materials, such as cover letters and résumés, submitted to the companies where he wants to work. Elizabeth recognizes that Brent has to follow a very tight schedule, if he wants to meet his goal within the next 60 days. She suggests that the two of them sit down together and decide the major milestones that need to be completed in the job search process. Elizabeth......

Words: 714 - Pages: 3

Brigham - Chapter 16 - Mini Case

...11/04/2010 Chapter 16. Mini Case for Working Capital Management Dan Barnes, financial manager of Ski Equipment Inc. (SKI), is excited, but apprehensive. The company's founder recently sold his 51% controlling block of stock to Kent Koren, who is a big fan of EVA (Economic Value Added). EVA is found by taking the net operating profit after-tax (NOPAT) and then subtracting the dollar cost of all the capital the firm uses: EVA = NOPAT – Capital costs = EBIT(1 – T) – WACC (Total capital employed). If EVA is positive, then the firm is creating value. On the other hand, if EVA is negative, the firm is not covering its cost of capital and stockholders' value is being eroded. Koren rewards managers handsomely if they create value, but those whose operations produce negative EVAs are soon looking for work. Koren frequently points out that if a company can generate its current level of sales with fewer assets, it would need less capital. That would, other things held constant, lower capital costs and increase its EVA. Shortly after he took control of SKI, Kent Koren met with SKI's senior executives to tell them of his plans for the company. First, he presented some EVA data that convinced everyone that SKI had not......

Words: 2576 - Pages: 11

Teletech Case

...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...

Words: 1357 - Pages: 6

Case 16-3

...Case 16-3: Bill French Note: This case is unchanged from the Eleventh Edition. Approach This case requires quite a few calculations, but it is a good case for introducing students to the uses and limitations of break-even analysis. It can be used to discuss many of the hidden assumptions involved in such an approach. Some instructors also find it a good vehicle for discussing some of the human problems arising when a young, well-educated person begins working in a business. Finally, at The University of Michigan we have found it useful to defer this case until Chapter 26, when we teach several cases on linear programming: Bill French can be used as an introductory case to raise the issue of what product mix is optimal given resource and/or sales volume constraints. Comments on Questions Question 1 There is undoubtedly a long list of assumptions that can be related to this, or any, break-even analysis. Part of the problem of dealing with analyses of this sort is that they take on the characteristic of being static even though the form of presentation might lead one to believe that here is a moving, dynamic analysis that allows for a variety of changed conditions. To an extent this is true; but there are many conditions that are assumed to be constant. It is to the assumed constants that the students must ultimately direct their attention. For instance: 1. French has had to assume that the variability of the variable costs is constant. French has thus assumed a relatively......

Words: 2720 - Pages: 11

Case 16 Reed's Clothier Inc.

...Case 16 Reed’s Clothier Inc James Jackson University of Phoenix Finance for Business FIN 370 Mr. Arnold Harvey July 21, 2010 Case 16 Reed’s Clothier Inc Reed’s Clothiers was founded by Jim Reed in 1934 when Jim retired from the military. Over the years, the business grew, netting over $800,000 by 1976. Jim Reed then decided to retire and handed over the family business to his son, Jim Reed II. The younger Jim then decided to buy a building in a prime area in downtown Lexington, creating a 880,000 mortgage debt. As the years progressed, Reed’s Clothiers success grew along with their inventory stock. Because of the rapid growth in Reed’s Clothiers’ inventory, debt was incurred. As the debt grew out of control and accounts became past due, Jim decided to make a visit to the bank his family did business with. There he learned that he was over extended in his credit and that he now had more debt and past due accounts than he did cash flow. The banker suggested that Jim hire a specialist to help manage his inventory and to get the company back on track. It was then Jim knew Reed’s Clothiers was in financial trouble. Reed’s Clothiers Question 1. Calculate a few ratios and compare Reed’s results with industry averages. (Some industry averages are shown in Exhibit 4.) What do these ratios indicate? Ratio                                                                             Reeds                             Industry Current   (current assets/current liabilities)......

Words: 880 - Pages: 4

Teletech

...h case Applied corporate finance | TeleTech Corporation 2005 | Case Analysis | | | | | CONTENTS 1. Executive Summary 2. Introduction 3. Analysis 4. Conclusion 1. Executive Summary Teletech Corporation is one of the frontrunners in Telecommunications industry. The company is mainly concentrated along two lines of business, the first being Telecommunication services and the second being Products and Systems (P&S) Segment. Telecommunication services accounted for 75% of the market value of the assets and the other 25% was occupied by P&S, however the ROC for the year 2004 for P&S is greater than Telecommunication services with a noticeable difference of 1.9%. The Current Book Value of Net Assets is$ 16 billion – 11.4 to Telecommunication, 4.6 to P&S. The Telecommunications Services segment currently has 7 million customers mainly belonging to the Southwest and Midwest and is considered as the dominant service providers of consumer satisfaction and product quality. It also has its revenues growing at an average rate of 3% (2000-2004). Its 2004 figures indicated a NOPAT of 1.18 billion, Net Assets: 11.4 Billion, Revenues: 11 Billion. Its Capital Budget is between 1.5 and 2 billion every year for 10 years and there is No tax rate relief for capital investments. Some factors that are playing to the advantage of this segment include Teletech expanding via acquisitions in Latin America, an overall deregulation......

Words: 5809 - Pages: 24

Teletech

...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......

Words: 399 - Pages: 2

Teletech Case Solution

...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.......

Words: 3020 - Pages: 13

Case 16 the New Vice President

...Case 16 – Part A 1. At this point, what are your predictions about Jennifer as the interim vice president? A glance thru Jennifer’s background at Mid-West U, briefly details out what type of person she is. She was well known and admired among her peers for her devotion to the University as well as for her energy and charm. Her characteristics portray how she devotes her entire life to her work and her social environment. She succeeds in her teaching career and administrative positions but being selected as the interim vice president doesn’t guarantee her any success. Being selected as the number-two person at the top of the organization will be a challenge, but it will allow her to manage people and have the opportunity to decide what’s best for Mid-West U Both of which are new tasks for her. “Big Five Personality Traits” The majority of personality tests qualify different personality aspects by five main traits. These traits are listed below. 1. Extraversion: outgoing, sociable, assertive. 2. Agreeableness: good-natured, trusting, cooperative. 3. Conscientiousness: responsible, dependable, persistent. 4. Emotional Stability: unworried, secure, relaxed. 5. Openness to Experience: imaginative, curious, broad-minded. These are not “types” of personalities, but dimensions of personality. So someone’s personality is the combination of each of their Big Five personality characteristics. For Jennifer, she may be very sociable (high Extroversion), very friendly......

Words: 2851 - Pages: 12

Case 15 Teletech Corp

...)(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......

Words: 1914 - Pages: 8

Case 16-3 Bill French

...Case 16 – 3 Bill French Questions 1. What are the assumptions implicit in Bill French’s determination of his company’s break-even point? * He has assumed that there is just one breakeven point for the firm (by taking the average of the 3 products). * He has also assumed that the sales mix will remain constant. Total revenue and total expenses behave in a linear manner over the relevant range. * Since the capacity is being expanded to increase production of Product C, it could be assumed that this increase should be allocated to this product. Production of Product A is to be scaled down, but its level of fixed costs has been assumed to be unchanged. 2. On the basis of French’s revised information, what does next year look like Unit sales price = $7.20 100.00% Variable cost/unit = 4.50 62.50 Contribution margin/unit = $2.70 37.50% a. What level of operations must be achieved to pay extra dividend, ignoring union demands? * FC + Target Dividend/CMR * 1st: Target Dividend = [300,000 + (50% x 300,000)] = 450,000 * 2,970,000 + 450,000/.375 * $9,120,000 b. What level of operations must be achieved to meet the union demands, ignoring bonus dividends? * FC + Union Demands/CMR * 1st: Union Demands = (6,750,000 x10%) = 675,000 * 2,970,000 + 675,000/.375 * $9,720,000 c. What level of operations must be achieved to meet both dividends and......

Words: 725 - Pages: 3