Teletech Corporation Case Analysis Essay

Decent Essays
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.…show more content…
What are the implications for Teletech’s resource allocation strategy? Looking at the graph above, when Teletech Corp. uses the constant hurdle rate, Telecommunications services which earns 9.1% on capital is underneath of the company’s hurdle rate. Moreover, the P&S which promises to earn 11% on capital is above the company’s hurdle rate. However, the result may be reversed by looking at the graph with adjusted risk hurdle rates. It is clear that company is doing better than they should in the telecommunication segment, because they are getting higher return in comparison to the risk they are taking. On the other hand, P&S segment is not doing as well as it should, because return is getting lower than the risk taken by the company. That is to say, constant and risk-adjusted hurdle rate lead to the different results when Teletech Corp. evaluated its ROR. Implications that company are facing in this strategy are that they are going with the constant hurdle rate for all of its segments, which is not viable. For this reason the company is not adding the extra value of the NPV that these segments are producing and resulting in a lower value for the shareholders. 4. Do you agree that “all money is green”? What are the implications of that view? What are the arguments in favor (against) that view? We are not agreeing on the fact that all money is green when the money from the company is being mismanaged. A firm would logically not accept risky projects
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