Teletech corporation,1996(讯科公司,业务部门的风险与回报权衡)

Cost of Debt Cost of Equity Bond Rating Tax Rate β RM-Rf RWACC
Cost of Debt 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%
ຫໍສະໝຸດ Baidu
4.20% 10.66% 7.% 40% 0.84 5.5% 9.19%
Opportunity The industry is evolving
Opportunity
The potential value is infinite
BUSINESS ANALYSIS 经营分析
Business Date
TS
CEO: Maxwell Harper
P&S
Market Value
CEO: Maxwell Harper
Products and Systems segment Strength
Technology leader Higher Growth Rate
Weakness
Widely investment High cost of financing High Risk
FINANCIAL ANALYSIS
CFO: Margaret Weston
姚 辉
FINANCIAL ANALYSIS
The Mission
财务分析
CFO: Margaret Weston
We will create value by pursuing business activities that earn premium rate of return.
It seems that the multiple hurdle rates are the better ,but also have some
questions.
姚 辉
Margaret Weston’s Concerns
The Questions
CFO: Margaret Weston
Question Three:
RWACC
Cost of Equity
RM-Rf TS P&S
Bond Rating Teletech
The firm’s hurdle rate is raised by the P&S segment. In present situation, we use the single hurdle rate of firm as whole to estimate the performance of each segment. It is indeed unfair for the low-risk segment. The performance was deprived by the high-risk segment.
P&S’S OPINION
VP: Helen Buono
王之祥
P&S’S OPINION 部门观点
Use the one hurdle rates
VP: Helen Buono
Based on a one hurdle rate, investors can more easily judgment.
Each year, the segment and business unit executives were measured on the basis of economic profit. The Equation NPV = ∑nt=1[Free Cash Flowt /(1+Hurdle Rate)t]- Initial Investment
财务分析
CFO: Margaret Weston
This rate was based on an estimate of Teletech’s weighted average cost of capital (WACC). The calculation
Hurdle Rates = RWACC=Wdebt*Rdebt+Wequity*Requity
Use the equation to assess the capital-investment proposals
FINANCIAL ANALYSIS
财务分析
CFO: Margaret Weston
WHAT IS
HURDLE RATE
FINANCIAL ANALYSIS
Hurdle Rates
Weakness
Lowly Growth Rate Industry regulated
Threaten
Tax cuts delayed New competitors to enter
Threaten
Elasticity is very big Powerful foreign competitors
Companies to raise money is based on the overall outlook and record
Single hurdle rate can direct funds into the department offers a high return
Margaret Weston’s Concerns
Question Four:
Question Two:
Questi ons
Multiple hurdle rate is easy to confuse investment and financing.
Using the multiple hurdle rate will lose more comparison between departments with the significance of performance evaluation.
Question One:
Multiple hurdle rate is based on the cost of capital rather than a strategic consideration, errors may occur.
It is difficult to assess the debt ability.
FINANCIAL ANALYSIS
Present situation
财务分析
TS
CFO: Margaret Weston
P&S 4.67% 14.29% 7.78% 40% 1.5 5.5% 13.96%
Teletech 4.22% 11.77% 7.03% 40% 1.04 5.5% 10.41%
= Wdebt*RB (1 – T)+ Wequity * [(RM-Rf) β +Rf ] Where: Wdebt = Weight of Debt, Wequity = Weight of Equity RB = Bond Rates , RM= Market Rates, Rf =Risk-free Rate β = Company stock's beta coefficient T = Tax Rate
Shareholder: Victor Yossarian
The Rate
13.96% 10.35% 9.80% 9.19% 12% 10.43% 10.37% 10.41%
10.35%
4%
2% 0% TS ROC(1995) P&S IRR WACC Teletech
The suggestion
Although the NOPAT of P&S segment was 0.48 billion last year, it’s WACC was 13.96% which is higher than the IRR 12% and the ROC 10.43%. So the economic profit will be lost, and it make the firm’s shares can not keep pace with the overall stock market indices. The firm is misusing its resources and not earning an adequate return. And it will be better if you abandon its misguided entry into computers, and sell the P&S Segment.
-0.2

Truly and fairly reflect the performance of each segment To reduce the cost of financing In the long run more truly reflect the capital-structure Help to promote the financing
TS’S OPINION
VP: Rick Phillips
解 辉
TS’S OPINION
部门观点
VP: Rick Phillips
Advocate the multiple rates
0.15
0.1
0.05 0 TS -0.05 -0.1 -0.15 P&S Teletech
E-Profit(adjust) E-Profit(befor)
The Measure
Economic profit= (ROC – Hurdle Rate) * Capital Employed Where, ROC = Return on Capital = NOPAT/ Capital NOPAT = Net Operating Profit After Taxes
Personage Introduction
人物介绍
DATA ANALYSIS
Shareholder: Victor Yossarian
贺智琼
DATA ANALYSIS 数据分析
The Profit
billion 18 16 14 12 10 8 6 4 2 0 TS Revenues P&S Net assets NOPAT Teletech 1.18 0.48 1.66 16% 14% 12% 10% 8% 6%
BUSINESS ANALYSIS
CEO: Maxwell Harper
许子华
BUSINESS ANALYSIS 经营分析
Telecommunications Services segment Strength
Main Suppliers for regional market Highly Satisfaction Stably Return Safely Investment Lower Cost
Growth Rate Bond Weightings Rate of profit The beta
75%
3% 22.80% 10.73% 0.84
25%
40% 3.45% 9.60% 1.5
Conclusion:
The market situation of the two segments are completely different, the business risk, capital structure is also different, so expected return is different, the greater the risk, the expected return is higher , the smaller the risk, the expected return is the lower.
TELETECH CORPORATION, 1996
--- Business segments and risk-return trade-offs
CASE ANALYSIS 案例分析
Shareholder
Victor Yossarian
Teletech’s Managers
CEO CFO Maxwell Harper Assistant Margaret Weston TS VP P&S VP Bernard Ingles Rick Phillips Helen Buono