Teletech Corporation Analysis Essay Example

cost of capital.

Phillips’ argument for the use of the risk-adjusted hurdle rate system is to use different hurdle rate because the cost of equity for Telecommunications Services is lower than it is for the Products and Systems. With the same hurdle rate, the Telecommunications Services will gradually run out of capital while Products and Systems will have all the funds coming into the firm.

Buono’s argument for the opposition to risk-adjusted hurdle rate is that multiple hurdle rates are illogical. The managers’ job should be to put the money where the returns are best. A single hurdle rate may deprive an underprofitable division of investments in order to channel more funds into a more profitable division, but that should be the aim of the process; to earn the highest absolute rate of return that the firm can get.