Introduction:

Target Corporationwas founded in 1902 as Dayton Dry Goods Company, headquartered in Minnesota. In 1962, the first target store was initiated with the purpose of catering customers with discounted values. In United States and Canada, there are currently 1888 stores, in addition to this, in 2004, all of the subsidiaries were sold by the company following the objective of focusing on select stores of Target Corporation. Currently, it is second largest and renowned discount retailer throughout the world. In contrast to this, the company has been facing fierce and strong competition from market leaders such as Wal-Mart and Costco. There is also a need that the company must adjust its capital budgeting process.

Problem Identification:

The capital expenditure committee (CEC) was comprised of a top executive team that usually met every month in order to review the capital project requests (CPR) which are in excess of $100,000. In the given case, there are five projects including Whalen Court, Gopher Place, Stadium Remodel, Goldie’s Square and The Barn. All of these projects were under consideration for the purpose of implementation. Each of the projects has its own cost and benefits on the performance of Target Corporation. The process of choosing one of the projects which hashigh Net Present Value and Internal Rate of Return is very important for the company ascapital investment hasa significant impact on the short term and long term profitability of the company.As a result, the ultimate objective of the case is to carry out ananalysis which might help in ranking the projects so that the company would come up with the decision for acceptance and rejection of the project.

Target Corporation Harvard Case Solution & Analysis

Target capital budgeting system and role of Real-Estate Manager and makeup of CEC:

The capital budgeting system of Target Corporationis composed of three foremost entities including the Research and Planning Group (R&P), the Real Estate Manager and the Capital Expenditure Committee (CEC). The approval process for allocation of capital budget commenced with multiple proposals which were passed on to the RealEstate Managers, which are responsible to manage specific geographical regions. Afterwards, the RealEstate Managers develop a proposal through satisfying and gathering various requirements and details so that they could prepare for the Capital Expenditure Committee’s pitch. The proposal processed earlier would be sent to the Research and Planning group, which would then make use of site-specific and demographic data to generateestimations of sales other forecasts. Later on, these estimations would be compiled with the work of managers so that they could comprise what Target Corporation calls as the “capital project request dashboard”, which would be reviewed by CEC which would then decide to accept or reject the proposal.

Even though the system is upfront, various problems are apparently incurred by R&P group and RealEstate Mangers in the development and preparation of the proposals or projects. In addition to this, the so-called “Emotional Sunk Cost” would be incurred during development and inception of projects.The company could not account for the emotional aspect of sunk cost incurred, it is believed by researchers that proposal development reimbursement and certain incentives arenecessary to boost the development rate of Target Corporation, especially in the midst of the highly competitive and extensive markets.................

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