Target Corp Case Analysis Essay

1808 Words Mar 30th, 2011 8 Pages
| 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
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This especially holds true if we are operating in a scenario where we overstate our projected sales values. There are two main reasons that these figures cannot be trusted independently. The first is that a high percentage of the sales figures are at the expense of our own stores. The Gopher Place location would be responsible for stealing 19% of its business from other Target stores in the area. This cannibalization problem indicates another unattractive aspect of the project, which is that the brand is already sufficiently established in the trade area. With the highest density of Target stores per potential customers, adding another store would flood the market. In addition, Gopher Place also ranks last in the target market of the middle class, college educated family. Yet, regardless of the drawbacks from a strategic standpoint, the financial outlook and potential for growth cannot be denied. We therefore would accept this project under normal circumstances, but would not issue additional debt or equity in order to undertake the development of Gopher Place.
The Stadium Remodel – Ranked 3rd
The initial perception of remodeling the Stadium location is that is not a worthwhile investment. This store has already been remodeled twice since its opening, and sales still have reportedly been slumping. However, a quick analysis of its projected cash flows proves that it is indeed worth the hassle. Although there is no projected sales

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