4. Do you agree “all money is green”? What are the implications of that view? What are the arguments in favour? What are the arguments against?
Yes, I agree with that all of the money is green. According to (Eades&Schill Bruner, 2010), which is “all investments at Teletech should be judged against one hurdle rate”. This view indicates that all of the money can create economic value, and all the operations should be performed higher than the hurdle rate. Each segment can be thought of as completely different and more ...view middle of the document...
Is Helen Buono correct that management would destroy value if all the firm’s assets were invested only in the telecommunications segment? Why or why not? Prepare a numerical example to support your view.
As case 15, it can be seen the hurdle rate is segment hurdle rate and not the corporate hurdle rate. Meanwhile the firm should not use the multiple hurdle rates in the different investment; it would destroy value if the firm’s whole assets were invested in the one telecommunication. So, Helen Buono is correct. Hulen Buono has an important purpose is to estimate economic profit, which is in order to judge Helen Buono who is correct or not. According to the case 15, the weighted average cost of capital (WACC) is 9.30% in Exhibit 1 and the capital employed is 16 in Exhibit 3. Along with the formula in this case, which is economic profit equals to (ROC minus Hurdle rate) times capital employed will equal -$0.032 billions. If the firm to invest assets into both segments, there is 75% invested in the telecommunication services in Exhibit 1, the WACC is should still be 9.30%. According to the same method above, the result is $0.0448, which is much higher than previous result, so all assets of firm were invested only in the telecommunications segment is best way.