TARGET CASE STUDY QUESTION: Now assume that the Target Corporation is only willing to spend $220M in this months CEC. $100M of the $220M is presumed to be utilized by the top 5 projects leaving only $120M for the remaining 5 projects (Gopher Place, Whalen Court, The Barn, Goldies Square, & Stadium Remodel). Under this case of capital rationing, what tool could you use to prioritize the projects and which ones would you choose? What is the combined NPV of your selected projects?

Gopher Place was a request for $23.0 million to build a P04 store scheduled to open in October 2007. The prototype NPV would be achieved with sales of 5.3% below the R&P forecast level. This market was considered an important one, with five existing stores already in the area. Wal-Mart was expected to add two new supercenters in response to favorable population growth in the trade area, which was considered to have a very favorable median household income and growth rate. Because of the high density of Target stores, nearly 19% of sales included in the forecasts were expected to come from existing Target stores.

Whalen Court was a request for $119.3 million to build a unique single-level store scheduled to open in October 2008. The prototype NPV could be achieved with sales of 1.9% above the R&P forecast level. Although Target currently operated 45 stores in this market, the Whalen Court market represented a rare opportunity for Target to enter the urban center of a major metropolitan area. Unlike other areas, this opportunity provided Target with major brand visibility and essentially free advertising for all passersby. Considering Targets larger advertising budget, the request for more than $100 million of capital investment could be balanced against the brand awareness benefits it would bring. Further, this opportunity was only available for a limited time. Unlike the majority of Target stores, this store would have to be leased. Thus if it was not approved at the November meeting, the property would surely be leased by another retailer.

The Barn was a request for $13.0 million to build a P04 store scheduled to open in March 2007. The prototype NPV was achievable with sales of 18.1% below the R&P forecast level. This project was being resubmitted after initial development efforts failed because of a disagreement with the developer. This small rural area was an extreme contrast to Whalen Court. The small initial investment allowed for a large return on investment even if sales growth turned out to be less than expected. This investment represented a new market for Target as the two nearest Target stores were 80 and 90 miles away.

Goldies Square was a request for $23.9 million to build a SuperTarget store scheduled to open in October 2007. The prototype NPV required sales 45.1% above the R&P forecast level. This area was considered a key strategic anchor for many retailers. The Goldies Square center included Bed Bath & Beyond, JCPenney, Circuit City, and Borders. Target currently operated 12 stores in the area and was expected to have 24 eventually. Despite the relatively weak NPV figures, this was a hotly contested area with an affluent and fast-growing population, which could afford good brand awareness should the growth materialize. Stadium Remodel was a request for $17.0 million to remodel a SuperTarget store opening March 2007. As a remodel, there was no prototype NPV for comparison. The recent sales decline and deteriorating facilities at this location could lead to tarnishing the brand image. This trade area had supported Target stores since 1972 and had already been remodeled twice previously. The $17 million investment would certainly give a lift to the lagging sales.