Target Proposed Questions

Proposed Questions for Target Case

Situation:

This case puts students in the role of Target Corporation’s CFO, Doug Scovanner, as he considers the pros and cons of a variety of capital-investment proposals. Scovanner is preparing his thoughts prior to the November 2006 meeting of the Capital Expenditure Committee (CEC). During that meeting he will join other Target senior executives, including the CEO, to consider the merits of 10 capital-project requests (CPR), five of which are expected to require extra attention from the committee members.

Purpose:

• To understand the capital-budgeting-decision process for a large corporation. Each decision process should support the corporation’s business and financial objectives. The capital-investment decision is important strategically because of the choice of where to spend the funds.

• To review the use of NPV and IRR as decision metrics. Although individual cash flows are not provided for the CPRs, the dashboards give substantial sensitivity analysis for changes in the value drivers of the projects, and therefore afford the opportunity for students to review the principles of NPV and IRR calculations.

• To understand the multidimensionality of a capital-investment decision. As a major retailer, Target executives recognized the importance of brand awareness to the success of the company, which makes the NPV only part of the consideration for a capital-project request.

Questions:

1. Be prepared to describe and critique Target’s capital-budgeting system. Give specific consideration to the role of the real-estate managers and the makeup of the CEC.

2. Which of the five CPRs should Doug Scovanner accept? Be prepared to explain how each of the considerations that follow influenced your decision:

a. NPV and IRR

b. Size of the project

c. Cannibalization of other stores’ sales

d. Store sensitivities

e. Variance to prototype

f. Customer...