What are factors mentioned in the case which would cause management to accept or reject a project that are not captured in the financial projections? Select all that apply.
1. Brand awareness
2. Management Growth Target of 100 Stores
3. Fits in capital budget to avoid raising more debt and higher cost of capital
4. Blocking a competitor from entering the market
The committee considered several factors in determining whether to accept or reject a project. An overarching objective was to meet the corporate goal of adding about 100 stores a year while maintaining a positive brand image. Projects also needed to meet a variety of financial objectives, starting with providing a suitable financial return as measured by discounted cash-flow metrics: NPV and IRR (internal rate of return). Other financial considerations included projected profit and earnings per share impacts, total investment size, impact on sales of other nearby Target stores, and sensitivity of NPV and IRR to sales variations. Projected sales were determined based on cconomic trends and demographic shifts but also considered the risks involved with the entrance of new competitors and competition from online retailers. And lastly, the committee attempted to keep the project approvals within the capital budget for the year. If projects were approved in excess of the budgeted amount, Target would likely need to borrow money to fund the shortfall. Adding debt unexpectedly to the balance sheet could raise questions from equity analysts as to the increased risk to the shareholders as well as to the ability of management to accurately project the company's funding needs. Other considerations included tax and real-estate incentives provided by local communities as well as area demographics. Target typically purchased the properties where it built stores, although leasing was considered on occasion. Population growth and affluent communities were attractive to Target, but these factors also invited competition from other retailers. In some cases, new Target stores were strategically located to block other retailers despite marginal short-term returns. When deciding whether to open a new store, the CEC was often asked to consider alternative store formats. For example, the most widely used format was the 2004 version of a Target store prototype called P04, which occupied 125,000 square feet, whereas a Super Target format occupied an additional 50,000 square feet to accommodate a full grocery assortment. The desirability of one format over another often centered on whether a store was expected to eventually be upgraded. Smaller stores often offered a higher NPV; but the NPV estimate did not consider the effect of future upgrades or expansions that would be required if the surrounding communities grew, nor the advantage of opening a larger store in an area where it could serve the purpose of blocking competitors from opening stores nearby
