target case study_pdf
TRANSCRIPT
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Precision Consulting FirmPrepared for Dr. Rivetti
Advanced Corporate Finance (404)
April 1, 2016
Consultant: Kevin Williams
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Doug Scovanner needs the Precision Consulting
Firm to rank the following projects so he can give
the best recommendation for the Capital
Expenditure Committee (CEC).
Chief Financial Officer ProfileDoug Scovanner
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(1st) The Barn (4th) Stadium (Remodel)
(2nd) Whalen Court (5th) Gopher Place
(3rd) Goldie’s Square
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§ Location Assessment Formula
§ Each grade earns a score out of 5, working on a letter grading system. Each subsection is given a weight to complete a weighted average calculation.
A = 5 C = 3 F = 1B = 4 D = 2
Example§ Company Alpha
§ Investment: 4 (.15)§ NPV: 4 (.20)§ Sales Decline: 3 (.05)§ IRR: 3 (.075)§ Population: 5 (.20)§ Population Increase: 1 (.075)§ Median Income: 2 (.10)§ % of College Adults: 5 (.15)
§ Total Grade Points (GP) = 27 (GP1*W1)+(GP2*W2)… (GP8*W8)= 3.800)§ Weighted Points (W) = 100%
§ WEIGHTED GRADE: 3.80
INTELLECTUAL PROPERTY
OF PRECISION CONSULTING FIRM. ©
* Weighting each subsection differently is done for more precise results yet the filter for each subsection is purely subjective.
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Investment OpportunitiesRequiring CEC Review
§ Gopher Place § Goldie’s Square § The Barn§ Stadium (Remodel)
§ Requires Board Approval
§ Whalen Court
The five projects available to pitch to the Capital Expenditures Committee.
CEC meets monthly to review all project requests in excess of $100,000.
Projects require board approval for all projects larger than $50,000,000.
Projects that have a negative NPV will be considered by the strategic importance to the company.
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Tomothy R. Baer
Michael Francis
John Griffith (CEC)
Jodeen Kozlak
Troy Risch (CEC)
Janet Schalk
Douglas Scovanner (CEC)
Terrence Scully
Gregg Steinhafel (CEC)
Robert Ulrich (CEC)
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§ Target Format§ Estimated 134,000 Square Feet.
§ 1,500 Square Feet “PFresh” Layout.
§ Super Target Format§ 239 Locations Presently§ Estimated 174,000 Square Feet.
§ “PFresh” Larger Layout.
§ Flexible Target Format (Express)§ Estimated 80,000 Square Feet.
§ Downtown City Layout§ Customers utilizing public transportation.
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§ Logo § Bulls-eye and Dog with the Target Logo.§ Studies support that the Target Brand is more
of a recognizable brand than Nike and their logo, the “Swoosh.”
§ Demographic§ Upper Middle Class§ Female
§ With Children.§ 4 Year Degree
§ The Dayton Company§ Opened first store in 1962.§ Changed name to “The Target
Corporation.Ӥ Opened first Target Super Store in 1995.
§ Website§ Launched Target.com in 1999.
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Wal-Mart Stores Inc.
§ Major Difference § Customer Base
§ Referring to customers as Guests.
§ Major Similarity§ Product Lines and Services
Costco Wholesale Corp.
§ Major Difference§ Product Lines
§ Major Simularities§ Customer Base
§ Membership Fees § 2% of Total Revenue.
§ 72.8% of Operating Income.
§ Like Target’s Red Card § Comprise a secondary stream of revenue.
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67%
11%
11%
11%
22%
REVENUE (BILLIONS)
Wa-Mart
Costco
Target
Sears
WAL-MART: 315.7 BILLION
COSTCO: 52.9 BILLION
SEARS: 49.1 BILLION
TARGET: 52.6 BILLION
Wal-Mart’sInternational Presence
• UNITED KINGDOM• CENTRAL AMERICA• SOUTH AMERICA• MEXICO• JAPAN• PUERTO RICO
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Initial Investment: $13,000,000.00 [Lowest]
§ Positive § Even if Sales drop 18% below forecast,
Target will still achieve it’s ROI.§ Store represents a new market with the
nearest Target is located 90 miles away.§ Building: Ownership
§ Negative§ Competitor Wal-Mart planning on
coming in.§ Store located in rural area.
Metrics
§ WEIGHTED GRADE: A (3.92)
§ NPV: $20,500,000
§ Sales Decline: ($4,066,000) [Lowest]
§ IRR: 16.4% [Highest]
§ Population: 151,000§ Increase: 3%
§ Median Income: $38,200/Year [Lowest]
§ % Adults/College: 17% [Lowest]
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Initial Investment: $119,300,000.00 [Highest]
§ Positive§ Rare opportunity for Target to enter the
“Urban Setting,” of a metropolitan area.
§ Negative
§ Building: Leased§ If not approved by November meeting, space
could be filled by other retailer.
§ Requires board approval since initial investment is > $50,000,000.
Metrics
§ WEIGHTED GRADE: B (3.39)
§ NPV: $25,900,000 [Highest]
§ Sales Decline: ($16,611,000) [Highest]
§ IRR: 9.8%
§ Population: 632,000 [Highest]§ Increase: 3%
§ Median Income: $48,500/Year
§ % Adults/College: 45% [Highest]
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Initial Investment: $23,900,000.00
§ Positive§ Carries an affluent and fast growing
population.
§ Building: Ownership
§ Key Strategic Area, Target already owns 12 stores in the area.
§ Negative§ Goldie’s Square requires a 45.1%
increase in Sales than what is forecasted to achieve stated NPV.§ NVP is also lowest of all projects.
Metrics
§ WEIGHTED GRADE: C (3.24)
§ NPV: $300,000 [Lowest]
§ Sales Decline: ($4,073,000)
§ IRR: 8.1%
§ Population: 222,000§ Increase: 16%
§ Median Income: $56,000/Year
§ % Adults/College: 24%
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Initial Investment: $17,000,000.00
§ Positive§ Has the highest Median Income.§ Building: Ownership
§ Negative§ No population/Population Increase
data available.
Metrics
§ WEIGHTED GRADE: D (3.16)
§ NPV: $15,700,000
§ Sales Decline: ($7,854,000)
§ IRR: 10.8%
§ Population: No Information§ Increase: No Information
§ Median Income: $65,931/Year [Highest]
§ % Adults/College: 42%
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Initial Investment: $23,000,000.00
§ Positive§ Even if Sales drop 5.3% below forecast,
Target will still achieve it’s ROI.
§ Building: Ownership
§ Negative§ Wal-Mart is planning to add 2
Supercenters in response to anticipated population growth.
Metrics
§ WEIGHTED GRADE: F (3.13) [Lowest]
§ NPV: $16,800,000.00
§ Sales Decline: ($4,722,000)
§ IRR: 12.3%
§ Population: 70,000§ Increase: 27%
§ Median Income: $56,400/Year
§ % Adults/College: 12% (Lowest)
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Precision Consulting FirmConsultant: Kevin Williams