Target Corp Case
#1: Target’s Capital budgeting system
Target Corporation uses an interesting capital-budgeting system. Projects are proposed using Capital Project Requests (CPRs) and must be approved before money can be spent. The level of approval needed depends on the amount being requested. For projects requiring less than $100K, lower management can approve, but anything above this amount goes to the Capital Expenditure Committee (CEC) which is comprised of 5 executive officers. For projects requiring greater than $50 million, the Board of Directors must approve.
The Capital Expenditure …show more content…
Target could enter in to a large metropolitan area and cater to the needs of a growing population.
The opportunity for brand awareness and free marketing help offset some of the sales risks but since this is a large investment the company may have other way it would like to spend its capital. The board will make the final decision, but we recommend approval.
Final decision: Send to Board recommending approval
The Barn: This project requires an investment of $13 million and has an expected NPV of $20.5 million and 16.4% IRR. This was the easiest decision of all the projects. The NPV and IRR alone are great metrics, but this project also has other positives. The Barn is a new market for growth with no Target stores within 80 miles, carrying 0% cannibalization. This project was the most favorable among all due to its potential to achieve the prototype NPV with even with 18.1% below the projected sales. The Barn project does not appear to present a huge opportunity for growth, but the risk of decline is also minimal. This project also does not offer much in terms of branding due to the store location but this is of little concern with such high financials.
Final decision: Approve
Goldie’s Square: This project requires an investment of $23.9 million and has an expected NPV of $0.3 million and 8.1%