FINANCE 601

R3-Corporate Finance-Target Corporation-Case Study Analysis_r3
 
Contents

List of Tables

 

List of Figures

 

 

1.      Executive Summary

Target Corporation has been one of the most reputed and highly recognized brands in the retail sector and has seen a significant growth since its inception. It had set itself an ambitious target to open at least 100 new stores every year. In this particular case study which dates back to 2006, the top management of Target received 10 projects requests worth $300 million of capital expenditure for approval. But the CFO of the company, Douglas A. Scovanner selected only five projects of about $200 million to discuss during the Capital Expenditure Committee (CEC) meeting. The CEC met every month to review project requests which are over $100,000. Approximately 10-15 projects are reviewed in a typical CEC meeting and only the capital project request (CPRs) which are economically attractive are considered. The meetings conducted lasted for several hours and the CEC carefully examined the CPR’s as they had a significant impact on short and long term profitability of the company. 

The projects typically required 12-14 months of development before forwarding to CEC. For all new store proposals the respective real estate agent of the specific geographic region is responsible from the beginning till completion of the project. There are a variety of factors that were considered while reviewing the CPRs. Several such factors are listed below.

1.      Goal – adding 100 stores every year along with maintaining a positive brand image.

2.      Projects have to provide financial return measured by NPV and IRR.

3.      Various other factors were considered,

a.       Projected revenues & profits

b.      Earnings Per Share (EPS) effects

c.       Extent of total investment

d.      Influences on the nearly by Target stores’ sales

e.       Sales variations induced sensitivity factors in NPV & IRR

4.      The projected sales were decided based on the following factors

a.       Economic trends

b.      Demographic shifts

c.       Risks involved with the entrance of new competitors 

d.      Competition from online retailers

5.      The project should not exceed the company’s set capital budget for that specific year.

6.      Tax and real estate incentives provided by local communities.

In this case study, an analysis of five different projects of Target Corporation is conducted. The company has to decide on the capital to be spent for the project which creates the most value and the most growth for the company and its shareholders. The positives and negatives effects of each of project, namely, Gopher Place, Whalen Court, The Barn, Goldie’s Square, or Stadium Remodel are analyzed using various financial data with the help of additional information. 
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