Teletech Corporation Case Analysis

In this scenario Margret Weston, received a letter. In the letter she found out that Yossarian acquired 10% of the company’s stock. This aggressive move by Yossarian was motivated by the company management not doing their job to maximize shareholders wealth. Moreover, the managers were having issues with the hurdle rate, because it is just generally accepted, but not scientifically proven. On the other hand one TV Commentators opinion about Teletech Corp. is that “there is no way to have a hostile takeover in this sector, but for the Teletech Corp. there are many reasons to try.” Teletech Corp. has two major business segments, Telecommunication Services and both Product and System Manufacturing make up the other segment we will analyze. The ROC of both the segments combined for a firm Return on Capital of 9.58%. In addition to this, the company is expecting a decrease in revenue in both segments. Margret Weston and company have been calculating returns using method of economic conditions to create value for the company. The economic condition is a model which includes differences between the rate of Capital (ROC) and Hurdle rate multiplied by the Capital employed. This Economic Condition Model is generated on the assumption based and rated according to the Weighted Average Cost of Capital, furthermore the ROC is calculated by Net Operating Profit After Taxes divided by Capital used. See Exhibit #4
The opposing arguments include a variety of topics, such as how the two businesses differ in risk, and the appropriateness of measuring all projects against the corporate hurdle rate of 9.3%. Our discussion will focus on explaining how the company is being mismanaged and how it should respond to Yossarian accusations, starting with hurdle rate.

In general, hurdle rate is the minimum amount of return on a project the company is willing to accept before starting a project. Here, Teletech Corp. currently uses the hurdle rate as a tool for evaluating its economic