In this scenario Margret Weston, received a letter. In the letter she found out that Yossarian acquired 10% of the company’s stock. This aggressive move by Yossarian was motivated by the company management not doing their job to maximize shareholders wealth. Moreover, the managers were having issues with the hurdle rate, because it is just generally accepted, but not scientifically proven. On the other hand one TV Commentators opinion about Teletech Corp. is that “there is no way to have a hostile takeover in this sector, but for the Teletech Corp. there are many reasons to try.” Teletech Corp. has two major business segments, Telecommunication Services and both Product and System Manufacturing make up the other segment we will analyze.
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Funds that are used towards risky projects that generate little or no return should not be considered green. If you look at Exhibit #5 which adjust for the individual risk of each segment then you will see that the economic profit adjusted risk puts Telecommunications with $81,692,307.71 Positive and for product and systems it is a Negative (17,454,545.46). From an investors stand point in order for money to be consider green, the company’s money must be used efficiently, and generate decent returns based on risk. This mismanagement may very well be equivalent to rat-hole investments, which will decrease the company’s value.
We disagree with her statement based Teletech Corporation’s, because the assets under the Products and Systems subsidiary are riskier, as is validated by the lower credit rating for the riskier assets (Exhibit). On the other hand, if we invest all of our capital in the telecommunication segment, then we generate an extra value for the company, because it is less risky and it generates more value for the shareholders on the basis of more return on capital. In addition, if we consider Economic profit we can clearly generate a higher profit in telecommunication segment by taking the risk adjusted rates. So, in our opinion Helen Buono was incorrect by saying that management would destroy value if the entire firm’s asset were redeployed in the telecommunication segment.