1.How does Teletech Corporation currently use the hurdle rate? Teletech Corporation currently uses a single hurdle rate for both of their divisions. The divisions are Telecommunications Services and Products and Services. They use the hurdle rate based on the cost of capital which is a rough estimate of the Teletech’s WACC. They calculate it at 9.3% based on the cost of capital, beta, and WACC.

2.Please estimate the segments WACCs for Teletech (see worksheet Exhibit 1). As you do this, carefully note the points of judgment in the calculation.

3.Interpret Rick Phillips graph (Figure 2).
How does the choice of constant versus risk-adjusted hurdle rates affect the evaluation of Teletech’s resource-allocation strategy? The costs of different forms of capital will all remain the same if each segment of Teletech had a different hurdle rate. The Telecommunications Services earns up to 9% on capital on a risk-adjusted rate. This is very profitable but the constant hurdle rate is not. For Products and services is opposite, not profitable on the risk-adjusted rate but very profitable for the constant hurdle rate.

4.Do you agree, “all money is green”? What are the implications of that view? What are the arguments in favor and against it? I agree that all money is green. In order to create economic value, all the segments in the business should be performing slightly above the hurdle rate. Each segment could be viewed completely different, and more independently, but this could ultimately make firms under or over invest in other divisions.

5.Is Buono right that management would destroy value if all the firm’s assets were redeployed into only the telecommunications business segment? Why or why not? Please prepare a numerical example to support your view.

6.Has products and Systems destroyed value? What evidence or illustrations can you give to support your opinion?

...CORPORATION
1. How does Teletech Corporation currently use the hurdlerate?
Currently Teletech uses a singlehurdlerate for both their Telecommunications Services and Products and Services divisions. The hurdlerate is the cost of capital based on an estimate of the corporation’s WACC.
2. Please estimate the segment WACCs for Teletech (see the worksheet in case Exhibit 1). As you do this, carefully note the points of judgment in the calculation.
Corporate Telecommunications Products & Systems
MV asset weights 100% 75% 25%
Bond rating A-/BBB+ A BB
Pretax cost of debt 5.88% 5.74% 7.47%
Tax rate 40% 40% 40%
After-tax cost of debt 3.53% 3.44% 4.48%
Equity beta 1.15 1.04 1.36
Rf 4.62% 4.62% 4.62%
RM 10.12% 10.12% 10.12%
RM-Rf 5.50% 5.50% 5.50%
Cost of equity 10.95% 10.36% 12.11%
Weight of debt 22.20% 27.1% 9.2%
Weight of equity 77.80% 72.9% 90.8%
WACC 9.30% 8.49% 11.41%
3. Interpret Rick Phillips’s graph (see Figure 2 in the case). How does the choice of constant versus risk-adjusted hurdlerates affect the evaluation of Teletech’s two segments? What are the implications for Teletech’s resource-allocation strategy?
Telecommunications Services, which can earn 9.10% on capital on a risk-adjusted hurdlerate is profitable but a corporate hurdle...

...
Over the Hurdle
Executive Summary
Currently, Teletech Corp. is using a single corporate hurdlerate to evaluate its investment decisions in its products and systems segment as well as its telecommunications segment. Using only one hurdlerate doesn’t take into account the risk that the company faces within each segment. Investors demand higher returns for riskier investments. Victor Yossarian is concerned about the low returns for the high risk in the products and systems segment, this is why he wants to abandon this segment. Using two hurdlerates adjusts for the risk in each industry allows the company to adequately value each segment. Our analysis will show that by using two hurdlerates it will lower the cost of equity and WACC for the less risky telecommunications segment, while raising the cost of equity and WACC for the more risky products and systems segment. Lastly, our calculation of the economic profitability for each industry using the segmented hurdlerates will show that Teletech may be overvaluing its products and systems segment while undervaluing its telecommunications segment. This implies that Teletech should reallocate its capital in order to increase economic profitability .
Introduction
We will conduct an industry comparison analysis to show how the the...

...differing hurdle rated for low, average, and high risk projects.
This paper critically reviews the different suggested measures and finally proposes measures that should be taken to improve the performance of the Randolph Corporation.
Divisional HurdleRates
To estimate the hurdlerates for every division of the Randolph Corporation that weighted average cost of capital (WACC) have to be calculated for every division. To apply the formula of the WACC the costs of equity have to be known. The cost of equity can be determined through the Capital Asset Pricing Model (CAPM). The results for every division’s equity cost and the computation of the hurdlerates can be seen in the Appendix. The divisions with higher risk have higher weighted average cost of capital.
WACC/HurdleRate
Real Estate 9.19%
Ceramic Coatings 10.24%
Equipment Manufacturing 10.55%
Home Products 9.34%
Fig. 1: Hurdlerate per division
To account for different levels of risks between the company’s projects the assistant of the vice president suggested an inclusion of different levels of risk within every division’s capital budgeting procedure. Managers in the divisions are asked to classify projects as high, average or low risk. Rather risky projects will hereafter be evaluated at a hurdlerate of 1.2 multiplied...

...management applied a hurdlerate of 9.30% to all capital projects and in the evaluation of the performances of business units (Bruner 2010).” The hurdlerate is the minimum rate of return on a project or investment required by a manager or investor. The riskier a project is going to be, the higher the hurdlerate will be. During 2004 Teletech shares could not keep pace with the overall stock market. One of the main reasons analysts believed this was happening was because the horrible performance in Products and Systems.
Even though Teletech was an industry leader, competition for the telecommunications segment of the market continued to strain profits margins. Also, the company was getting numerous complaints about selling off Products and Systems segments of Teletech due to the sizable amount of investments needed in the research and development to maintain the segment.
2. Problem Statement
Due to recent pressure to sell Products and Systems segment of Teletech, Teletech is reevaluating the hurdlerates for both segments, and whether to continue to use one corporate hurdlerate or a risk-adjusted rate for each segment in hopes to keep both segments.
3. Alternative Solutions
Solution #1 Continuing to use one hurdlerate to evaluate business decisions for both...

...Teletech Corporation
1. What is a hurdlerate? How do you use it in a project evaluation?
Hurdlerate is the minimum amount of return on a project the company is willing to accept before starting a project. It is used in project evaluation to evaluate the amount of return on the project. A common method for evaluating the hurdlerate is apply the discounted cash flow method to the project, like net present value.
2. How does Teletech Corporation currently use the hurdlerate?
They used it based on the firm’s rating, beta, cost of capital, and they calculated WACC of 9.3% for the whole corporation.
3. What are Rick Phillips’s arguments for the use of the risk-adjusted hurdle-rate system? What are Buono’s arguments against the system?
Both arguments were discussed because the firm has two segments in the corporation with different cost of capital.
Phillips’ argument for the use of the risk-adjusted hurdlerate system is to use different hurdlerate because the cost of equity for Telecommunications Services is lower than it is for the Products and Systems. With the same hurdlerate, the Telecommunications Services will gradually run out of capital while Products and Systems will have all the funds coming into the firm.
Buono’s...

...currently compute its hurdlerate and how does it evaluate risky projects? What is wrong with this method?
Teletech computes it’s hurdlerate by averaging the past 10 years annual weighted average cost of capital (WACC) rates, and then “massaging” the result into a round percentage. This is not an ideal way to calculate the hurdlerate as it reflects rates of financing from the past when borrowing rates were in different ranges. Teletech evaluates risky projects by determining if the present value ratio is greater than 1 (PV inflows/PV outflows). Projects that had a ratio of greater than 1 are given further consideration but those that fall below 1 are summarily dismissed. The firms used a NPV ratio of 1 for very low risk projects, 1.2 for moderate risk projects, and 1.5 for high risk projects.
2) What are the merits of a divisional, as opposed to corporate-wide, hurdlerate system? Which do you recommend and why?
* the merits of a divisional rather than corporate wide hurdlerate system reflect the different risks unique to the different market segments – there may be risks that one division encounters that should not be reflected when evaluating a project for the other division. Teletech corporation is divided into two main segments: Telecommunications Services and Products...

...Problems and Questions – Risk Measurement and HurdleRates in Practice
Rem.: Use 5.5% as your equity risk premium, for T. Bonds, where none is given, and 8.5% as your short term ERP.
1. In December 1995, Boise Cascade’s stock had a beta of 0.95. The Treasury bill rate at the time was 5.8%, and the Treasury bond rate was 6.4%.
a. Estimate the expected return on the stock for a short-term investor in the company.
b. Estimate the expected return on the stock for a long-term investor in the company.
c. Estimate the cost of equity for the company.
2. Boise Cascade had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate marginal tax rate was 36%.
a. Assuming that the current beta of 0.95 for the stock is a reasonable one, estimate the unlevered beta for the company.
b. How much of the risk in the company can be attributed to business risk and how much to financial leverage risk?
3. The following table summarizes the percentage changes in operating income, percentage changes in revenue, and betas for four pharmaceutical firms.
|Firm |% change in revenue |% change in operating income |Beta |
|PharmaCorp |27% |25% |1.00 |...

...History of mathematics
A proof from Euclid's Elements, widely considered the most influential textbook of all time.[1]
The area of study known as the history of mathematics is primarily an investigation into the origin of discoveries in mathematics and, to a lesser extent, an investigation into the mathematical methods and notation of the past.
Before the modern age and the worldwide spread of knowledge, written examples of new mathematical developments have come to light only in a few locales. The most ancient mathematical texts available arePlimpton 322 (Babylonian mathematics c. 1900 BC),[2] the Rhind Mathematical Papyrus (Egyptian mathematics c. 2000-1800 BC)[3] and the Moscow Mathematical Papyrus (Egyptian mathematics c. 1890 BC). All of these texts concern the so-calledPythagorean theorem, which seems to be the most ancient and widespread mathematical development after basic arithmetic and geometry.
The study of mathematics as a subject in its own right begins in the 6th century BC with the Pythagoreans, who coined the term "mathematics" from the ancient Greekμάθημα (mathema), meaning "subject of instruction".[4]Greek mathematics greatly refined the methods (especially through the introduction of deductive reasoning andmathematical rigor in proofs) and expanded the subject matter of mathematics.[5] Chinese...

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