Victor Yossarian acquired a 10% stake in Teletech Corporation and demanded board seats, criticizing the company's returns. Teletech's CFO Margaret Weston organized a team to assess the threat. She needed to respond to Yossarian in the short term and assess hurdle rates and segment performance in the long term. Debate had occurred within Teletech about the appropriate hurdle rates for evaluating projects given the different risks of its two business segments, Telecommunications Services and Products and Systems. The telecom segment argued it faced lower risk and its projects should be evaluated using a lower hurdle rate.

1. DARDEN.
UVA-F-1152
Version 2.1
BUSINESS PUBLISHING
UNrvERsn'YcfVIRGINIA
TELETECH CORPORATION, 1996
Margaret Weston, Teletech's chief financial officer,
Raider Dials Teletech learned ofYossarian's letter late one evening in early January
1996. Quickly she organized a team of lawyers and finance
"Wake-Up Call Needed" staff to assess the threat Maxwell Harper, the firm's CEO.
Says Investor scheduled a teleconference meeting of the firm's board of
New York (AP)--The reclusive billionaire
directors the next afternoon. Harper and Weston agreed that
Victor Yossarian has acquired a 10 percent before the meeting they needed to fashion a response to
stake in Teletech Corporation and has Yossarian's assertions about the firm's returns.
demanded two seats on the firm's board of
directors. The purchase was revealed
yesterday in a filing with the Securities and Ironically, returns had been the subject of debate
Exchange Commission, and separately in a within the firm's circle ofsenior managers in recent months.
letter to Teletech's CEO. Maxwell Harper. A number ofissues had been raised about the hurdle rate used
"The firm is misusing its resources and not
earning an adequate return," the letter said. by the company in evaluating performance, and in setting the
"The company should abandon its misguided annual capital budget. Since the company was expected to
entry into computers. and sell the Product andinvest nearly $2 billion in capital projects in 1996, gaining
Systems Segment Management must focus on
creating value for shareholders." Teletech closure and consensus on these issues had become an
issued a brief statement emphasizing the important priority for Margaret Weston. Now, Yossarian's
virtues ofa link between computer technology letter lent urg~ncy to the discussion. In the short run, she
and telecommunications.
needed to respond to Yossarian. In the long run, she needed
Wall Street Daily News. January 9. 19% to assess the competing viewpoints, and recommend new
policies as necessary. What should be the hurdle rates for
Teletech's two business segments? Was the Products and Systems segment really paying its way?
This case was
written by Robert F. Bruner and is dedicated to the memory of Professor Robert F. Vande II, a scholar in
I'
corporate finance and investment analysis and the author of an antecedent case upon which the present case draws.
Teletech Corporation is a fictional company, reflecting the issues facing actual firms, and is used as a basis for class
discussion rather than to illustrate effective or ineffective handling ofan administrative situation. The financial support
ofth'e Batten Institute is gratefully acknowledged. Copyright (0 1997 by the University of Virginia Darden School
Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mailtosales@dardenpublishing.com..
No part ofthis publication may be reproduced, stored in a retrieval system. used in a spreadsheet. or transmitted in any
form or by any means-electronic. mechanical. photocopying. recording. or otherwise-without the permiSSion ofthe
Darden School Foundation. Rev.12/01. 0
J>~'>6';;»0 Distributed by The European Case Clearing House. England and USA.
.if ,J!!?!, North America. phone: +17812395884. tax: +17812395885. e-mail: ECCHBabson@ao!.com.
;. 6.. t Rest oftbe Wodd, phone: +44 (0)1234750903. tax: +44 (0)1234 751125. e-mail: ECCH@crnnfield.ac.uk.
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2. -2­ UVA-F-1152 r o ,
The Company
Teletech Corporation, headquartered in Dallas, Texas, defined itself as a "provider of
integrated information movement and management." The firm had two main business segments:
Telecommunications Services and the manufacture of computing and telecommunications
equipment, a segment named Products and Systems. In 1995, Telecommunications Services had
earned a return on capital (ROC)i of9.8 percent; Products and Systems had earned 12.0 percent.
The firm's current book value of net assets was $16 billion, consisting of $11.4 billion allocated to
Telecommunications Services, and $4.6 billion allocated to Products and Systems. An internal
analysis suggested that Telecommunications Services accounted for 75 percent of the market value
ofTeletech, while Products and Systems accounted for 25 percent. The current capital expenditures
proposed by Telecommunications Services offered prospective internal rates of return averaging of
9.8 percent; the IRR for
prospective Products and
Systems projects averaged Teletech Share Prices vs. Market and Industry
12.0 percent. Overall, it Indexes
appeared that the firm's
prospective return on capital 170 -x-S&P100
would be 10.35 percent. 150!
130
.~ _ ~
-0- Telephone
i-a- TelecomEq.
Top management applied a
_x-~x I i
hurdle rate of 10.41 percent 110 ~ ,... - _ +-+-+-+--+ I-o-Corrputers ;
+-+a+-+-+-+=-+- I
to all capital projects, and in 90 I f I I I I I I I I I I 1-+- Teletech_.....,i
L-......._ _ _
i
evaluating the performance "OJOJ<';; 't"q..... ),;;;~ 't"';;;¢)' olJ-· ,}t,'"
of business units. «~.
Over the past 12 Month
months, the firm's shares
had not kept pace with the
overall stock market indices, or with industry indexes for telephone, equipment, or computer stocks.
Securities analysts had remarked on ~.firm' s lackluster earnings growth, pointing especially to in­
creasing competition in tele-communications, as well as disappointing performance in the Products
and Systems segment. A prominent commentator on television opined that "there was no precedent
for a hostile takeover of a telephone eompany, but in the case of Teletech, there is every reason to
try."
Teletech's Telecommunications Services segment
The Telecommunications Services segment provided long-distance, local, and cellular
telephone service to more than 7 million customer lines throughout the Southwest and Mi<:iwest.
Revenues in this segment grew at an average rate of 3 percent over the 1989-95 period. I:fi'~IIf~S,
segment revenues, net operating profit after tax (NOPAT), and net assets were $11 billion, $1.18
I Return on capital is calculated as the ratio of net operating profits after tax (NOPA T) to capital.

3. UVA-F-1152
billion. and $11.4 billion, respectively. Since the court-ordered breakup of the Bell System
telephone monopoly in 1983, Teletech had coped with gradual deregulation of its industry through
aggressive expansion into new services and geographic regions. Most recently, the firm had been a
leading bidder for cellular telephone operations. and for licenses to offer personal communications
services (PCS). In addition, the firm had purchased a number of telephone operating companies in
privatization auctions in Latin America. Finally, the firm had invested aggressively in new
technology-primarily digital switches and optical-fiber cables-in an effort to enhance its service
quality. All of these strategic moves had been costly: the capital budget in this segment had varied
°
between $1.5 and $2 billion in each of the previous 1 years.
Unfortunately, profit margins in the telecommunications segment had been under pressure
for several years. Government regulators had been slow to provide rate relief to Teletech for its
capital investments. Other leading telecommunications providers had expanded into Teletech's
geographic markets and invested in new technology and quality enhancing assets. Teletech's
management noted that large cable TV companies might enter the teleconununications market and
continue the pressure on margins.
On the other hand, Teletech was the dominant service provider in its geographic markets and
product segments. Customer surveys revealed that the company was the leader in product quality
and customer satisfaction. Teletech's management was confident that the company could conunand
premium prices, however the industry might evolve.
Teletech's Products and Systems segment
Before 1990, teleconununications had been the company's core business, supplemented by
an equipment-manufacturing division that produced teleconununications components. In 1990, the
company acquired a leading computer workstation manufacturer with the goal of applying state-of­
the-art computing technology to the design of telecommunications equipment. The explosive
growth in the microcomputer market and the increased use oftelephone lines to connect home- and
office-based computers with mainframes oonvinced Teletech management ofthe potential value of
marrying telecommunications equipment and computing technology. Using Teletech's capital base,
borrowing ability, and distribution network to catapult growth, the Products and Systems segment
increased its sales by nearly 40 percent in 1995. This segment's 1995 NaPAT and net assets were
$480 million and $4.6 billion, respectively. "
Products and Systems was acknowledged to be a technology leader in the industry. While
this accounted for its rapid growth and pricing power, maintenance of that leadership position
required sizable investments in R&D and fixed assets. The rate of technological change was
increasing, as witnessed by sudden major write-offs by Teletech on products that until recently
management had thought were still competitive. Major computer manufacturers were entering into
the teleconununications-equipment industry. Foreign manufacturers were proving to be stiff
competitors in bidding on major supply contracts.

4. -4- UVA-F-1l52 /'".
t
Focus on Value at Teletech
Teletech's mission statement said in part,
We will create value by pursuing business activities that earn premium rates o/return.
Translating that statement into practice had been a challenge for Margaret Weston. First, it
had been necessary to help managers of the segments and business units understand what "create
value" meant for them. Because the segments and smaller business units did not issue securities into
the capital market, the only objective measures of value were the securities prices of the whole
corporation-but the activities of any particular manager might not be significant enough to drive
Teletech's securities prices. Therefore, the company had adopted a measure of value creation for
use at the segment and business unit level that would provide a proxy for the way investors would
view each unit's performance. This measure, called "economic profit," multiplied the excess rate of
return of the business unit times the capital it used:
Economic Profit = (ROC - Hurdle Rate) x Capital Employed
Where:
. NOPAT
ROC = Return on Capital = - - ­
Capital
NOPAT = Net Operating Profit After Taxes
c
Each year, the segment and business unit executi ves were measured on the basis of economic profit.
This measure was an important consideration in strategic decisions about capital allocation,
manager promotion, and the awarding of incentive compensation.
A second way in which the value creation perspective influenced managers was in the
assessment of capital-investment proposals. For each investment, projected cash flows were
discounted to the present using the firm's hurdle rate to give a measure of the net present value (or
NPV) of each project. A positive (negative) NPV indicated the amount by which the value of the
firm would increase (decrease) ifthe project were undertaken. The following equation shows how
the hurdle rate was used in the familiar NPV equation: ...
n
Net Present Value :E [ Free Cash FIOWI I ] - Initial Investment
(1 + Hurdle Rate)
t 1
Hurdle Rates
The hurdle rate used in the assessments of economic profit and NPV had been the focus of
considerable debate in recent months. This rate was based on an estimate of Teletech's weighted,
average cost of capital (WACC). Management was completely satisfied with the intellectual ~

5. -5- UVA-F-1152
relevance of a hurdle rate as an expression of the opportunity cost of money. The notion that the
WACC represented this opportunity cost had been debated. Its measurement was never considered
wholly scientific, but it had been accepted. For instance, Teletech was "split-rated" between AA­
and A+. An investment banker recently suggested that, at these ratings. new debt funds might cost
Teletech 7.03 percent (about 4.22 percent after a 40 percent tax rate). With a beta of 1.041. the cost
of equity might be about 11.77 percent. At market-value weights of 18 percent for debt and 82
percent for equity. the resulting WACC would be 10Al percent. Exhibit 1 summarizes the
calculation. The hurdle rate of lOA 1 percent was applied to all investment and performance­
measurement analyses in the firm.
Arguments for risk-adjusted hurdle rates
How the rate should be used within the company in evaluating projects was another point of
debate. Given the different natures ofthe two businesses and the risks each one faced, differences of
opinion arose at the segment level over the appropriateness of measuring all projects against the
corporate hurdle rate of 10Al percent. The chief advocate of multiple rates was Rick Phillips,
executive vice president of Telecommunications Services, who presented his views as follows:
Each phase of our business is different, must compete differently, and must draw on
capital differently. Until recently, telecommunications was a regulated industry, and
the return on our total capital highly certain, given the stable nature ofthe industry.
Because of the recognized safety of the investment, many telecommunications
companies can raise large quantities ofcapital from the debt markets. In operations
comparable to Telecommunications Services, 75 percent of the necessary capital is
raised in the debt markets at interest rates reflecting solid AA quality, on average­
this is better than the corporate bond rating of AA-/A+. Moreover, I have to believe
that the cost of equity of Telecommunications Services is lower than for Products
and Systems. I contrast this with the Products and Systems segment where, although
sales growth and profitability are strong, risks are high. Independent equipment
manufacturers are financed by hi~her yield BBB-rated debt and more equity with
higher expected total returns.
In my book, the hurdle rate for Products and Systems should reflect these higher
costs offunds. Without the risk-adjusted system of~dle rates, Telecommunications
Services will gradually starve for capital, while Products and Systems will be force­
fed-that's because our returns are less than the corporate hurdle rate, and theirs are
greater. Telecommunications Services lowers the risk ofthe whole corporation, and
should not be penalized.
Here's a rough graph of what I think is going on. Telecommunications Services,
which can earn 9.8 percent on capital, is actually profitable on a risk-adjusted basis,
even though it is not profitable compared to the corporate hurdle rate. The triangle
shape on the drawing shows about where Telecommunications Services is located.

6. -6- UVA-F-1152 _
(
My hunch is that the reverse is true for Products and Systems, which promises to
earn 12.0 percent on capital. P+S is located on the graph near the little circle.
Constant vs. Risk-Adjusted Hurdle Rates
17
.......- Teletech Corp. Hurdle
-...- Telecomm. Services
-e- A-oducts and Systems
Risk Level
c
In deciding how much to loan us, lenders will consider the composition of risks. If
money flows into safer investments, over time the cost of their loans to us will
decrease.
Our stockholders are just as much concerned with risk. Ifthey perceive our business
as being more risky than other £9mpanies, they will not pay as high a price for our
earnings. Perhaps this is why our price/earnings ratio is below the industry average
most ofthe time. It is not a question ofwhether we adjust for risk-we already do
infonnally. The only question in my mind is whether we make these adjustments
systematically or not.
While multiple hurdle rates may not reflect capital-structure changes on a day -to-day
basis, over time they will reflect prospects more realistically. At the moment, as I
understand it, our real problem is an inadequate and very costly supply of equity
funds. If we are really rationing equity capital, then we should be striving for the
best returns on equity for the risk. Multiple hurdle rates achieve this objective.
Implicit in Phillips's argument, as Weston understood it, was the notion that ifeach segment
in the company had a different hurdle rate, the costs ofthe various fonns ofcapital would remain the .
same. However, the mix of capital used would change in the calculation. Low-risk operations ~

7. -7- UVA-F-1152
would use leverage more extensively, while the high-risk divisions would have little or no debt
funds. This lower-risk segment would have a lower hurdle rate.
Opposition to risk-adjusted hurdle rates
Phillips's views were supported by several others within Teletech; opposition was just as
strong, however, particularly within the Products and Systems segment. Helen Buono, executive
vice president for the segment, expressed her opinion as follows:
All money is green. Investors can't know as much about our operations as we do.
To them the firm is an opaque box; they hire us to take care of what is inside the box,
andjudge us by the dividends coming out of the box. We can't say that one part of
the box has a different hurdle rate than another part ofthe box, if our investors don't
think that way. Like I say, all money is green: all investments at Teletech should be
judged against one hurdle rate.
Multiple hurdle rates are illogical. Suppose that the hurdle rate for Tele­
communications Services was much lower than the corporatewide hurdle rate. Ifwe
undertook investments that met the segment hurdle rate, we would be destroying
shareholder value because we weren't meeting the ('orporate hurdle rate. ­
Ourjob as managers should be to put our 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 isn't that the aim of the
process? Our challenge today is simple: we must earn the highest absolute rates of
return we can get.
In reality, we don't finance each division separately. The corporation raises capital
based on its overall prospects and record. The diversification of the company
probably helps keep our capital C0sts down and enables us to borrow more in total
than the sum of the capabilities of the divisions separately. As a result, developing
separate hurdle rates is both unrealistic and misleading. All our stockholders want is
for us to invest our funds wisely in order to increase the value of their stock. This
happens when we pick the most promising projects~ irrespective of their source.
Margaret Weston's Concerns
As she listened to these arguments, presented over the course of several months, Weston
became increasingly concerned with several related considerations. First, the corporate strategy
directed the company toward integrating the two divisions. One effect ofusing multiple hurdle rates
would be to make justifying high-technology research and application proposals more difficult, as
the required rate of return would be increased. Perhaps, she thought, multiple hurdle rates were the

8. -8- UVA-F-1152 r
f
right idea, but the notion that they should be based on capital costs rather than strategic
considerations might be wrong. On the other hand, perhaps multiple rates based on capital costs
should be used, but in allocating funds, some qualitative adjustment should be made for
unquantifiable strategic considerations. In Weston's mind, theory was certainly not clear on how to
achieve strategic objectives when allocating capital.
Second, using a single measure ofthe cost ofmoney (the hurdle rate or discount factor) made
the net present value results consistent, at least in economic terms. If Teletech adopted multiple
rates for discounting cash flows, Weston was afraid the NPV and economic profit calculations would
lose their meaning and comparability across business segments. To her, a performance criterion had
to be consistent and understandable, or it would not be useful.
In addition, Weston was concerned with the problem of attributing capital structures to
divisions. In Telecommunications Services, a major new switching station might be financed by
mortgage bonds. But in Products and Systems, it was not possible for the division to borrow
directly; indeed, any financing was feasible only because the corporation guaranteed the debt. Such
projects were considered highly risky-perhaps, at best, warranting only a minimal debt structure.
Also, Weston considered the debt-capacity decision difficult enough to make for the corporation as a
whole, let alone for each division. Judgments could only be very crude.
In further discussions with those in the organization about the use of multiple hurdle rates,
Weston ran across two predominant trains of thought. One argument held that the investment
decision should never be mixed with the financing decisionr A firm should decide what its
C" .
investments should be and then how to finance them most efficiently. Adding leverage to a present­
value calculation would distort the results. Use of multiple hurdle rates was simply a way ofmixing
financing with investment analysis. This argument also held that a single rate left the risk decision
clear-cut: management could simply adjust its standard (NPV or economic profit) as risks increased.
The contrasting line of reasoning noted that the weighted-average cost of capital tended to
represent an average market reaction to;l. mixture ofrisks. Lower-than-average-risk projects should
probably be accepted even though they did not meet a weighted-average criterion.
Higher-than-normal-risk projects should provide a return premium. While the multiple-hurdle-rate
system was a crude way of achieving this end, it at least was a step in the right direction. Moreover,
some argued that Teletech's objective should be to maximize return on equity funds, and because
"
equity funds were and would remain a comparatively scarce resource, a multiple-rate system would
tend to maximize returns to stockholders better than a single-rate system.
To help resolve these questions, Weston asked her assistant, Bernard Ingles, to summarize
academic thinking about multiple hurdle rates. His memorandum is given in Exhibit 2. She also
requested that he draw samples ofcomparable firms for Telecommunications Services and Products
and Systems that might be used in deriving segment WACCs. The summary of data is given in
Exhibit 3. Information on capital-market conditions in January 1996 is given in Exhibit 4.

9. -9- UVA-F-1l52
Conclusion
Weston could not realistically hope that all the issues before her would be resolved in time to
influence Victor Yossarian's attack on management. But the attack did dictate the need for an
objective assessment of the performance of Teletech's two segments-the choice of hurdle rates
would be very important in this analysis. However, she did want to institute a pragmatic system of
appropriate hurdle rates (or one rate) that would facilitate judgments in the changing circumstances
Teletech faced. What were the appropriate hurdle rates for the two segments? Was Products and
Systems underperforming as Yossarian suggested? How should Teletech respond to the raider?

10. -10- UVA-F-1152 ?­
Exhibit 1
TELETECH CORPORATION, 1996
Summary of W ACC Calculation for
Teletech Corporation, and
Segment Worksheet
Telecommunications Products and
Co!]!!rate Services SYstems
MY Asset Weights 100% 75% 25%
Bond Rating AA-/A+ AA BBB-
Pre-tax Cost of Debt 7.03% 7.00% 7.78%
Tax Rate 40% 40% 40%
After-tax Cost of Debt 4.22% 4.20% 4.67%
Equity Beta 1.04
Rf 6.04%
RM-Rf 5.50%
Cost of Equity
Weight of Debt
Weight of Equity
11.77%
18.0%
82.0%
c
WACC 10.41 "I"
...

11. UVA-F-1152
Exhibit 2
TELETECH CORPORATION, 1996
Theoretical Overview of Multiple Hurdle Rates
To: Margaret Weston
From: Bernard Ingles
Subject: Theory of Segment Cost of Capital
Date: January 1996
You requested an overview of theories about multiple hurdle rates. Without getting into
minutiae, the theories boil down to the following points:
1. The central idea is that required returns should be driven by risk. This is the dominant view in the
field of investment management, and is based on a mountain of theory and empirical research
stretching over several decades. The extension of this idea from investment management to
corporate decision making is straightforward, p;~ least in theory.
2. An underlying assumption is that the firm is transparent (Le., that investors can see through the
corporate veil and evaluate the activities going on inside). No one believes firms are completely
transparent, or that investors are perfectly informed. But financial accounting standards have
evolved toward making the firm more transparent. And the investment community has grown
tougher and sharper in its analysis: Teletech now has 36 analysts publishing reports and forecasts on
the firm. The reality is that for big publicly held firms, transparency is not a bad assumption.
3. Another underlying assumption is that the value of the whole enterprise is simply the sum of its
parts-this is the concept of Value Additivity. We can define "parts" as either the business
segments (on the left-hand side of the balance sheet) or the layers of the capital structure (on the
right-hand side of the balance sheet). Market values (MVs) have to balance.
"
MV Tete/edl = ( MV Tet.:«omllllltlicaliolls Services + MV t'mdm:ls+ ::i.w/ellls) = ( MV dehl + MV <'qui/V)
Ifthese equalities did not hold, then a raider could come along and exploit the inequality by buying
or selling the whole and the parts. This is "arbitrage." By buying and selling, the actions of the
raider would drive the MVs back into balance.

12. -12- UVA-F-1152 r
~
Exhibit 2 (continued)
4. Investment theory tells us that the only risk that matters is nondiversifiable risk, which is
measured by "beta." Beta indicates the risk that an asset will add to a portfolio. Because the
investor is assumed to be diversified, she is assumed to seek a return for only that risk that she
cannot shed, the nondiversifiabIe risk. Now, the important point here is that the beta ofa portfolio is
equal to a weighted average of the betas of the portfolio components. Extending this to the
corporate environment, the "asset beta" for the firm will equal a weighted average of the
components of the firm-again, the components of the firm can be defined in terms of either the
right-hand side or the left-hand side of the balance sheet.
Where:
W = percentage weights based on market values.
fJ Tel. Serv.' fJ p.s Asset betas for business segments.
fJ debl fJ for the firms debt securities.
fJeqUlIY= fJ of firms common stock (given by Bloomberg, etc.)
c
This is a very handy way to model the risk ofthe firm, for it means that we can use the Capital Asset
Pricing Model to estimate the cost of capital for a segment (i.e., using segment asset betas).
5. Given all the previous points, it follows that the weighted average of the various costs of capital
(K) for the firm (W ACC), which is the theoretically correct hurdle rate, is simply a weighted average
of segment W ACCs:
Where:
WTe/"Cf'.' WI"S = market value weights.
WACC TeL'."rv. = (Wdebl. TeL'::.erv,(; K debl. Tel.Serv) + ( Weqllily. Tel.Serv.t: K e<IUlly. Tel.Serv)

13. -13- UVA-F-1152
Exhibit 2 (continued)
6. The notion in point #5 may not hold exactly in practice. First, most of the components in the
WACC formula are estimated with some error. Second, because oftaxes, information asymmetries,
or other market imperfections, assets may not be priced strictly in line with the model-for a
company like Teletech, it is reasonable to assume that any mispricings are just temporary. Third, the
simple two-segment characterization ignores a hidden third segment: the corporate treasury
department that hedges and aims to finance the whole corporation optimally-this acts as a "shock
absorber" for the financial policies of the segments. Modeling the WACC ofthe corporate treasury
department is quite difficult. Most companies assume that the impact of corporate treasury isn't
very large, and simply assume it away. As a first cut, we could do this too, though it is an issue we
should revisit.
Conclusions
• In theory, the corporate WACC for Teletech is appropriate only for evaluating an asset
having the same risk as the whole company. It is not appropriate for assets having different
risks than the whole company.
• Segment WACCs are computed similarly to corporate W ACCs.
a
• In concept, the corporate WACe is weighted average of the segment WACCs. In practice,
the weighted-average concept may not hold, due to imperfections in the market and/or
estimation errors.
• If we start computing segment W ACCs, we must use the cost of debt, cost of equity, and
weights appropriate to that segment. We need a lot of information to do this correctly, or
else we really need to stretch to make assumptions.

14. -14- UVA-F-1152._
Exhibit 3
TELETECH CORPORATION, 1996
Samples of Comparable Firms
1995 Equity Asset Bond Book Val. Pricel Mkt. Val. Mkt. Val. Pricel
Revenues Seta Seta Iiaiiog OebtJCap Book Debt/Cap DebtlEq. Eacniogs
Teletech Corporation $16,000 1.041 0.92 AA-tA+ 40% 3.01 18% 22% 12.9
Telecommunications Services Industty
AT&T $80,000 0.90 0.85 AA 39% 6.60 8.8% 9.7% 30.8
Alltel Corp. 3,160 0.75 0.63 A 49% 2.99 24.3% 32.2% 16.0
Amerltech 13,325 0.75 0.67 AA 47% 4.72 15.8% 18.8% 16.9
BeD Atlantic 13,500 0.80 0.68 AA 57% 4.53 22.6% 29.3% 17.5
Bell South 17,780 0.75 0.72 AAA 44% 11.90 6.2% 6.6% 19.0
Centul)' Tel. Enterprs. 625 1.00 0.84 BBB+ 46% 2.63 24.5% 32.4% 15.8
Cincinnati Bell 1,350 0.80 0.69 AA 56% 4.72 21.2% 27.0% 18.8
Citizens Utilities Co. 1,070 0.70 0.56 AA 42% 1.68 30.1% 43.1% 15.8
Comsat 850 0.95 0.68 A 40% 1.03 39.2% 64.6% 16.8
Frontier Corp. 1,750 0.80 0.74 A 42% 5.50 11.6% 13.2% 28.3
GTE Corp. 20,250 0.80 0.66 BBB 69% 6.52 25.4% 34.1% 16.9
MCI Communications 15,100 1.25 1.14 A 24% 1.87 14.4% 16.9% 17.9
NYNEX Corp. 13,425 0.75 0.59 A­ 62% 3.75 30.3% 43.6% 15.6
Pacific Telesis 9,070 0.85 0.68 AA­ 74% 6.94 29.1% 41.0% 13.6
SBC Communications 12,560 0.90 0.80 'A 54% 5.59 17.3% 21.0% 18.0
Southem New England 1,840 0.75 0.58 AA 57"10 2.63 33.5% 50.4% 15.4
Sprint Corp.
U.S. West
Average
13,550
9,450
1.05
0.65
0.84
0.87
0.52
0.72
BBB
AA ­
'52%
66%
51%
3.13
4.67
4.52
25.7%
29.4%
22.8%
34.7%
41.6%
31.1%
15.0
14.3
17.9
C'.,
Telecommunications Equipment Industty
ADC Telecomm. Inc. $586 1.35 1.35 NR 0% 4.05 0.0% 0.0% 28.0
Aane-Cleveland 120 1.50 1.49 NR 1% 1.51 0.7% 0.7% 12.8
ADen Group 325 1.60 1.55 NR 13% 2.75 5.2% 5.4% 18.8
Andrew Corp. 626 1.25 1.23 NR 13% 4.40 3.3% 3.4% 19.7
DSC Communications 1,450 1.30 1.26 NR 18% 3.72 5.6% 5.90/. 17.9
Newbridge NetworIs 675 1.55 1.55 NR 1% 5.48 0.1% 0.1% 23.9
Qualcomm Inc, 386 1.55 1.52 NR 9% 3.41 2.8% 2.9% 58.3
Tellabs Inc. 645 1.50 1.50 NR 1% 7.96 0.1% 0.1% 26.6
Average 1.45 .... 1.43 7% 4.16 2.2% 2.3% 25.8
Computer and Network Equipment Industty
Amdahl Corp. $1,500 1.3!} 1.20 NR 12% 0.95 12.5% 14.3% 1~ 1
Bay Networks Inc. 1,342 1.75 1.74 NR 10% 9.03 1.2% 12% 26.0
Cabletron Systems 1,060 1.60 1.60 NR 0% 6.57 0.0% 0.0% 21.8
Cisco Systems 1,979 1.75 1.75 NR 0% 13.83 0.0% 0.0% 26.9
Digital Equipment 13,813 1.10 1.04 NR 22% 2.87 8.9% 9.8% 17.1
General Datacomm 221 1.85 1.79 NR 17% 3.96 4.9% 5.2% NMF
Hewlett-Packard 31,519 1.25 1.24 NR 6% 3.33 1.9% 1.9% 14.6
SCI Systems 2,673 1.20 1.06 NR 32% 2.20 17.6% 21.4% 12.7
Sequent Computer 535 1.95 1.92 NR 3% 1.24 2.4% 2.5% 12.0
Standard Microsystems 345 1.60 1.52 NR 10% 1.31 7.8% 8.5% 29.8
Stratus Computer 580 1.60 1.59 NR 2% 1.36 1.5% 1.5% 13.3
Sun Microsystems 5,902 1.55 1.54 NR 3% 4.18 0.7% 0.7% 17.6
Tandem Computers 2,285 1.55 1.50 NR 6% 1.05 5.7% 6.1% 33.3
3ComCorp. 1,295 1.60 1.59 NR 12% 11.90 1.1% 1.1% 25.8
Average 1.55 1.51 10% 4.56 4.7% 5.3% 20.4

15. -15- UVA-F-1152
Exhibit 4
TELETECH CORPORATION, 1996
Debt Capital Market Conditions, January 1996
Corporate Bond Yields, by Rating U.S. Treasurv Securities
Industrials
AAA 6.50% Short-term bills 5.20%
AA 7.00% Intermediate-term notes 5.43%
A 7.64% Long-term bonds 6.04%
BBB 7.78%
BB 8.93%
B 10.49%
Utilities
AA 6.53%
A 7.94%
BBB 8.06%

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