Target

Case #19

Target Corporation

Synopsis and Objectives

. Scovanner, Target Corporation’s CFO, is preparing his thoughts prior to the November 2006 meeting of the Capital Expenditure Committee (CEC) as he considers the pros and cons of a variety of capital-investment proposals. 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. Each CPR is presented to the committee with a “dashboard” that summarizes the critical inputs used to compute the net present value (NPV) and internal rate of return (IRR). The dashboards also contain data about the type of investment (new store or remodel), market size, location, customer-demographic information, as well as the sensitivity of NPV and IRR to changes in various inputs. In addition to the factors influencing the economics of the CPRs, Scovanner cites such issues as brand awareness and the corporate goal of 100 new stores per year as considerations for accepting or rejecting the projects. Thus, the CEC is tasked with balancing corporate strategy with investment opportunities and profitability.

The objectives of the case are the following:

* 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...