Target Corp Case Analysis
| Target Corporation |
Memo
To: Dr. Brian Boscaljon
From: Adam Leone and Jean Costa
CC: Doug Scovanner, CFO
Date: [ 2/14/2011 ]
Re: November Meeting Capital Budgeting Decisions
The Objective
As the November Meeting approaches, CFO Doug Scovanner is faced with the problem of choosing which of the five controversial projects available to accept. Our task is to assume this role and evaluate each of the projects based upon two major criteria. The first is determining the firm’s financial motives by quantifying the projected value added to the firm and the risk associated with each project. When determining to accept or reject projects based upon adding value, the most helpful instruments we have are Net Present Value (NPV) and the Internal Rate of Return (IRR). As we consider capital constraint problems, we also use the Profitability Index in order to determine which projects add the most value per dollar spent. Some key drivers behind this decision criterion include projected sales figures, speculated variations in these sales projections, and the impact that adding a new store into the trade area has on the sales of surrounding stores. The second criterion involved in analyzing the projects is determining the firm’s business motives. This deals with recognizing Target’s corporate goals and mission and how they accomplish this through their business strategy. Two of the greatest aspects of their strategy are a high value on brand awareness and a defined target market of college educated women with a family. The ultimate goal, therefore, is finding a healthy balance between these two criteria by integrating as much of Target’s business strategy into the fundamental financial goals of wealth maximization shared by all firms.
Analysis
It has already been established that the vast majority of projects that make it to this stage of the analysis have been considered to be profitable endeavors. Therefore, the main goal from this point forward is to consider how
Memo
To: Dr. Brian Boscaljon
From: Adam Leone and Jean Costa
CC: Doug Scovanner, CFO
Date: [ 2/14/2011 ]
Re: November Meeting Capital Budgeting Decisions
The Objective
As the November Meeting approaches, CFO Doug Scovanner is faced with the problem of choosing which of the five controversial projects available to accept. Our task is to assume this role and evaluate each of the projects based upon two major criteria. The first is determining the firm’s financial motives by quantifying the projected value added to the firm and the risk associated with each project. When determining to accept or reject projects based upon adding value, the most helpful instruments we have are Net Present Value (NPV) and the Internal Rate of Return (IRR). As we consider capital constraint problems, we also use the Profitability Index in order to determine which projects add the most value per dollar spent. Some key drivers behind this decision criterion include projected sales figures, speculated variations in these sales projections, and the impact that adding a new store into the trade area has on the sales of surrounding stores. The second criterion involved in analyzing the projects is determining the firm’s business motives. This deals with recognizing Target’s corporate goals and mission and how they accomplish this through their business strategy. Two of the greatest aspects of their strategy are a high value on brand awareness and a defined target market of college educated women with a family. The ultimate goal, therefore, is finding a healthy balance between these two criteria by integrating as much of Target’s business strategy into the fundamental financial goals of wealth maximization shared by all firms.
Analysis
It has already been established that the vast majority of projects that make it to this stage of the analysis have been considered to be profitable endeavors. Therefore, the main goal from this point forward is to consider how