Teletech Case Study
Telecommunications Services is seen to be a stronger performer because it sits above the risk adjusted hurdle line in both risk level and return. It takes into account the individual WAC figures of the firms, 8. 7% for Telecoms and 1 1. 68% for P&S, and their corresponding values of systematic risk, represented by beta, 1.
04 and 1. 39, respectively. Telltale’s strategy entails that they are wanting to spread the risk between both their divisions. Their aim is to make both divisions look appealing to all takeovers, and that both are worth investing in. Q. I do not agree that “all money is green”.
All good investors would take the time to learn about the company and understand its operations before investing in them.
They would not Just see a company as a “black box”. Investors would want projects to be more accurately evaluated. The implication of this view “all money is green” assumes that investors believe that they will receive the same %Rate of return, regardless of how each division performs, which is clearly not the case. The arguments in favor of this view come from Helen Bono.
She believes that investors do in fact see companies as a simple “black box” because they have no way of knowing enough about the operations of a business.
Therefore companies should simplify their information by using one hurdle rate to help investors decided whether or not to invest. The argument against this comes from Mr. Phillips, who believes that all information provided to investors should be accurately evaluated. He states that if the higher costs for the Products and Systems division is ignored, then the Telecommunications division will eventually starve for capital and all funds would be pushed into the Products and Services division.
This is why it is beneficial for both the company and investors to use a risk-adjusted hurdle rate. Q. Telltale ($b) Telecommunications ($b) Products and Services ($b) Capital 16 Allocation Value of Firm Helen Bono is mistaken in believing that the management would destroy value by only investing in the telecommunications division. Above we can see the value of the individual divisions against the value of Telltale. The telecommunications division