Target Corp Case Essay example

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MGT 6060 SPRING SEMESTER, 2013 CASE #2 – TARGET CORP Group: Blake West Daeyoun Bae Charles Scott Ahmed Sattar Alex Harkey #1: Target’s Capital budgeting system Target Corporation uses an interesting capital-budgeting system. Projects are proposed using Capital Project Requests (CPRs) and must be approved before money can be spent. The level of approval needed depends on the amount being requested. For projects requiring less than $100K, lower management can approve, but anything above this amount goes to the Capital Expenditure Committee (CEC) which is comprised of 5 executive officers. For projects requiring greater than $50 million, the Board of Directors must approve. The Capital Expenditure…show more content…
The investment of Gopher Place will cause 19% of its sales to be cannibalized from five pre-existing Target stores in the area but this is not enough to impact the scenario. The financials are consistent, risk seems low, and the region is growing. Final decision: Approve Whalen Court: This project requires an investment of $119.3 million and has an expected NPV of $25.9 million and 9.8% IRR. Even though this project has the highest NPV, it carries an unusually high investment cost of over 119 million so the return on investment is not as favorable as the other projects. In comparison to the prototype store, Whalen Court expects nearly $100 million more in sales, but since the building must be leased the operating costs are also much higher than the prototype at nearly $90 million more. The Whalen Court project will be in an area with 45 Target stores saturating the market, but with a great opportunity for brand visibility and in a large population center, it will only cannibalize 10% of current Target sales in the future. Whalen Court brings concerns regarding its high risk variance. Based on current estimates, this project requires a 1.9% better than expected sales to have an IRR in line with the prototype store. A 10% sales decline is expected to result in an NPV loss of 64% from its base, dropping the IRR below 9%. In terms of market strategy, Whalen Court is the best project because the demographics allowing for Target to
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