Target

Description:

At the end of 2016, the CEC of target is discussing from 10 of the project, which 5 project to choose. We use capital budgeting method to analyze and decide which project to accept.

Analysis:

Target’s capital system is pretty completed and it involves people from all levels. First of all, CPRs are reviewed by people from lower levels such as divisional managers. Then projects exceed $100,000 are brought to discuss in the monthly meeting of the CEC committee, which consists of the president, vise presidents, CFO and CEO. If the projects surpass $50 million, they will require approval from the board of directors. In case of any conflict, the final decision of the CEC committee is made by the CEO. The projects are brought to the CEC committee and the board of directors in the form of “dash board”, which is composed of a detailed financial summary of the project compared to the prototype and demographics information such as local population and median household income. The advantage of Target’s capital-budgeting system is that it is very efficient. The company as a whole can make large amounts of investment decisions fast and easily. The downside is that the CEC committee as well as the board of directors could not find a way to make sure the reports proposed by the real-estate managers are 100% trustful.

To decide which of the five CPRs should Doug Scovanner accept, we use eight measures that we have to consider. Technically, five CPRs all have different styles. The objective was to add 100 stores while maintaining a positive brand image.

Firstly, let’s think about NPV, IRR and size of the project. NPV refers the profits of projects. The larger NPV, the better. According to the case, Whalen Court has the highest NPV. Basically NPV is supposed to be issued with the first investment together. Whalen Court still needed a number of investment. And Barn looks like better. IRR marks the required rate of return. The higher, the better. Secondly,...