All of the five projects have a positive NPV, but the CEC members questioned whether the projected NPVs justify the required investment? To be able to answer such question, those members should consider the sensitivity analysis in taking their decision. An important sensitivity feature is the comparison of the projected NPV and IRR with the prototyped ones. The prototype of the P04 store is a NPV of $15 million and IRR of 13%,whilethe Super Target Store has a prototype of $23million NPV and 15% IRR. The prototype of the single-level store is a NPV of $13million andIRR of 12%. The following is a brief bout each project:
Gopher Place, request $24 million to build a P04 store scheduled to open in October 2007. The prototype NPV is achieved with sales of 5.3% below the forecasted level. There are already five Target stores in place and Wal-Mart is expected to add two supercenters. Whalen Court, request $119.3 to build a Super Target store scheduled to open in October 2008. The prototype NPV is achieved with sales of 1.9% above forecast level. Although Target has currently 45 stores operate in this area, Whalen Court provides Target with major brand visibility and free advertising for all passersby.
The Barn, request $110 million to build a P04 store scheduled to open in March 2007. The prototype NPV is achieved with sales of 18.1% below the forecasted level. This small area is an extreme contrast to Whalen Court, because it represents a new market for Target as the nearest Target stores are 80 and 90 miles away. Goldie’s Square, request $23.9 million to build a unique single-level Store scheduled to open in October 2007. The prototype NPV is achieved with sales of 45.1% above the forecast level. There are many retailers in the area such as, JCPenny and Borders,Target currently operates 12 stores in this area and expects to add more stores. Stadium Remodel, request $17 million to remodel a Super Target store opening in March 2007. There is no NPV prototype...
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