Assignment
Teletech Corporation Individual Work
1. What are the estimated equity and asset betas for Telecommunications and Products and Systems divisions? Assume that the beta for the Products and Systems division is equally weighted between the Telecommunications Equipment Industry and Computer and Network Equipment Industry. Also assume that the capital structure within Teletech is the same for both divisions.
2. What are the cost of equity and weighted average costs of capital for the two divisions?
3. Using the returns on capital of 9.1% for the Telecommunications division and 11% for the Products and Systems division, were the individual divisions earning back their required rates of return?
4. Using the WACC for the entire firm of 9.30%, were the individual divisions earning back the required rate of return of the investors of the firm?
5. If Teletech continues to use the single WACC as the hurdle rate for all projects that Teletech accepts, how is that likely to affect which projects are accepted (i.e. projects of which division are more likely to be accepted?) How would that impact the WACC of Teletech in the future?
6. If Teletech evaluates each project using the WACC of the individual divisions, which division's projects would be more attractive? Who would impact the WACC of Teletech in the future?