Target Corporation Harvard Case Solution & Analysis

Question 1

CPR ACCEPTANCE:

NPV and IRR

1.Target has five CPRs forwarded to the committee, in which have positive NPVs. Out of all the five projects, Target should accept Whalen Court as it has the highest NPV of $25900 and Goldie’s Square has the lowest NPV of $300 therefore, it should be the last project to be accepted on the basis of NPV.On the other hand, the second highest NPV belongs to the project, The Barn, with the positive NPV of $20500 therefore, it should be second in line after Whalen Court, with Gopher’s place and Stadium remodel having the third and fourth highest NPVs of $16800 and $15739 respectively.(Exhibit 1)

By taking the maximin approach, the highest NPV even with the decline in sales by 10% is $16434 of The Barn therefore, it should be preferred over other projects with Gopher’s place on second, Whalen Court being the third, Stadium Remodel on fourth and Goldie’s Square on last with the negative NPV of $3773.(Exhibit 1)

The Barn should be preferred over other projects as it has the highest IRR of 16.40% with Gopher Place on second with 12.30% IRR and Stadium remodel and Whalen Court on third and fourth with the IRR of 10.80% and 9.80% respectively.(Exhibit 1)

By considering the maximin approach with the decline in sales by 10%, same projects should be accepted. (Exhibit 1)

Size of Projects

2) By considering the size of projects; the projects that Target should accept are firstly, The Barn as it requires capital of $13 million, which is the lowest of all projects. The second project on the according to the size should be Stadium remodeling as it requires investment of $17 million. Gopher’s Place and Goldie’s square are third and forth as they require capital of $23 million and $23.7 million respectively. The last project on the basis of size should be Whalen court as it requires capital of $119 million. (Exhibit 2)

Cannibalization of Sales from Other Stores

3) The first project on the basis of cannibalization from other stores, which should be accepted by Target, is The Barn as it has no cannibalization from other stores. The second project is Whalen Court as it has the least cannibalization from other stores of 7.44%. Moreover, the third and fourth projects are Gopher Place and Goldie’s Square that have the cannibalization from other stores of 12.31% and 13.24%, therefore, they should be considered while the project with the most cannibalization from other stores is Stadium Remodeling as it has 84% cannibalization from other stores. (Exhibit 3)

Variance to Prototype

4) The first project to accept considering the variance to prototype is The Barn as the NPV of store $17406 is above by $7326 as compared to prototypical store’s NPV. Another project that should be accepted on the basis of variance is Gopher Place as its NPV of store $13201 is above by $2493 than the prototypical store. (Exhibit 5)

Customer Demographics

5) The projects that Target should accept based on customer demographics are Goldie’s Square as it has the most number of increase in population with 24% people as adults and its median income is $56000.The second is Whelan Court’s as its increase in population is second highest with 18960 people with over 45% people adults with the median income of $48500. The third is Gopher Place with highest population increase with 18900 people with the second highest median income of $56400 and 12% people are adults.

Stadium remodeling’s median income is highest and the numbers of adults are 42% however, there is no increase in population, which is still better than The Barn, where there is increase in the population of 4530 people and has the lowest median income of $38200 and the numbers of adults are 17%.

Impact on Brand Awareness

6) According to the impact on brand awareness’ influence on the decision to decide, which project should be accepted, Whelan Court should be accepted as it provides an opportunity to enter in the urban center of a major metropolitan area. Moreover, it provides Target with brand visibility and free advertising, which will save the advertising cost of Target. The second option is The Barn, as it provides an opportunity to enter in a new market, which means brand awareness should be enhanced by the investment. Third option for Target is to invest in Goldie’s Square as it is a key strategic area where major players are present and it is a highly competitive area, where growing population will help in brand awareness. The fourth option is to invest in Gopher Place due to the high population growth, which if materializes, then it will help Target with the awareness of brand................................

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