Teletech Case

Teletech Corporation described itself as a provider of merged information movement and management. It was comprised of deuce business pieces: the Telecommunications operate and the productions and Systems divisions. The telecommunications business which provides telephone services throughout the Midwest and southwesterly are its only business before 2000 when it added the Products and Systems divisions after its acquisition of a computing workstation manufacturer. Teletech has long used a mavin corporate wide bank vault rate. Since the overleap rate is normally the cost of capital, WACC for the company is calculated as below:

monetary value of debt5.88%
After tax 3.53%
D/E28.21%
Company beta 1.15
Cost of equity10.95%
WACC 9.3%

It meaning that any project that volition not return 9.3% will be rejected and anything supra 9.3% has a good chance of being accepted. Actually the unavoidable rate of return and the systematic risk of cash flows for to each one project were not equal. Actually the projects with low return has a bring down beta and would have a lower bank vault rate and projects with high(prenominal) return have a higher beta and higher hurdle rate.



The application of single hurdle rate will result in rejection of projects which return is higher than the actual hurdle rate and accept projects which return is lower than the actual hurdle rate. In other words, it would lead to stupid rejects for Telecom services while signaling false accepts for the Product and Systems group.

Therefore it is suggested that different hurdle should be used ground on the specific amount of risk. But it is improbable to accurately estimate beta for each projects, we need to find hurdle rates for projects with similar risks. In the case of Teletech, the telecomuncitions industry is little risky with lower return and computer and telecommunications products and services segment by contrast is more risky with higher return. It means that Teletech should apply two separate hurdle rate for the two business segments....If you want to get a full essay, determine it on our website: Orderessay



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