Teletech Corp Case Analysis
Analysis
Teletech is a business process outsourcing multinational Organization, founded in 1982 by Kenneth D.Tuchman and headquartered in Englewood, Colorado. Teletech provides services for customer management, transaction-based processing, database marketing services, professional sales and eCommerce. Teletech operates in diverse industries of Automotive, Communications and Media, Financial Services, Government Services, Healthcare Services and Technology. The firm is based in 17 countries with a total of 62 delivery centers. The company is listed on NASDAQ (National Association of Securities Dealers Automated Quotations) stock exchange, which is the second largest stock exchange after the New York Stock Exchange in terms of market capitalization.
The given case analysis presents an argument between the use of a single hurdle rate to evaluate all segments of the company versus the use of multiple hurdle rates corresponding to the risk of the particular segments in the year 2005. The hurdle rate is the minimum rate of return on a project or investment required by an investor. The riskier is the project, the higher the hurdle rate. Teletech has two main business segments; Telecommunications services whose function is to provide long distance, local and cellular telephone services and the Products and Systems Segment that deals with the manufacturing of computing and telecommunication equipment. The firm’s book value was $16 Billion , comprising of $11.4Billion in Telecommunication Services and $4.6Billion allocated to Products and Systems. Telecommunication accounts for 75% of the market value and Products and Systems account for 25%. The Return on Capital is 9.10% for Telecommunication services and 11% for Products and Systems. Teletech uses a hurdle rate (or WACC) of 9.30% to all capital projects.
Values are taken from Exhibit 1:
Weight of debt = 22.2%
Weight of equity= 77.8%
rWACC = 3.53 *22.2 + 10.95 *77.8 =9.30%
This hurdle rate is at the
Teletech is a business process outsourcing multinational Organization, founded in 1982 by Kenneth D.Tuchman and headquartered in Englewood, Colorado. Teletech provides services for customer management, transaction-based processing, database marketing services, professional sales and eCommerce. Teletech operates in diverse industries of Automotive, Communications and Media, Financial Services, Government Services, Healthcare Services and Technology. The firm is based in 17 countries with a total of 62 delivery centers. The company is listed on NASDAQ (National Association of Securities Dealers Automated Quotations) stock exchange, which is the second largest stock exchange after the New York Stock Exchange in terms of market capitalization.
The given case analysis presents an argument between the use of a single hurdle rate to evaluate all segments of the company versus the use of multiple hurdle rates corresponding to the risk of the particular segments in the year 2005. The hurdle rate is the minimum rate of return on a project or investment required by an investor. The riskier is the project, the higher the hurdle rate. Teletech has two main business segments; Telecommunications services whose function is to provide long distance, local and cellular telephone services and the Products and Systems Segment that deals with the manufacturing of computing and telecommunication equipment. The firm’s book value was $16 Billion , comprising of $11.4Billion in Telecommunication Services and $4.6Billion allocated to Products and Systems. Telecommunication accounts for 75% of the market value and Products and Systems account for 25%. The Return on Capital is 9.10% for Telecommunication services and 11% for Products and Systems. Teletech uses a hurdle rate (or WACC) of 9.30% to all capital projects.
Values are taken from Exhibit 1:
Weight of debt = 22.2%
Weight of equity= 77.8%
rWACC = 3.53 *22.2 + 10.95 *77.8 =9.30%
This hurdle rate is at the