Target Case Study

Target Corporation

Our next case review, discussion, and case brief will cover Target Corporation from our casebook packet. This case will provide some perspective on the capital budgeting process for large corporations and the importance of both quantitative and qualitative components. The required case brief should be three pages in length not including schedules or other detailed analysis such as graphs, financial ratios, etc. The first page should describe the issue or assignment, the second the analysis, and the third, the team recommendation based upon your analysis.

The following questions on the case may help in your analysis and case brief.

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 make-up 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 demographics

g. Brand-awareness impact

3. Why does Target use different hurdle rates for the store and the credit cards (9% and 4% respectively)? What process would you use to estimate these discount rates to see if they are reasonable?

4. As a member of the CEC, would you continue to approve CPRs if it meant that Target would need to fund the requests with external funds, either debt or equity?

I will also make team assignments for the various roles represented by key decision makers in the case. This will help in setting the stage for the discussion next week.