Teletech Corporation, 2005

Abstract

This case serves as part of an introduction to estimating investors' required rates of return. It should follow one or two class sessions covering the techniques for estimating WACC. The numerical calculations required are light, although some of the subtleties about the use of risk-adjusted hurdle rates will require time for the novice student to absorb. The case is about the CFO of a telecommunications company who must respond to a corporate raider claiming that a major business segment of this company should be sold because it is not earning a satisfactory rate of return. The case examines the use of a single hurdle rate to evaluate all segments of the company versus a risk-adjusted hurdle-rate system. The tasks for the student are to resolve the debate, estimate the weighted-average costs of capital (WACC) for two business segments, and respond to the raider.

Excerpt

UVA-F-1485

Rev. Oct. 1, 2010

TELETECH CORPORATION, 2005

Raider Dials Teletech

“Wake-Up Call Needed,”

Says Investor

. . .

Keywords: WACC weighted average cost of capital, hurdle rate, rate of return