Case 19 – Target Corporation analysis
1. Why does Target use different hurdle rates for the store and the credit cards (9% and
4%, respectively)? What process would you use to estimate these discount rates to see if
they are reasonable?
Target uses different hurdle rate for the store and the credit cards because they want to
make as much revenue as possible. With the low credit card rate Target is able to get a lot
of people to sign up for the credit card because the interest rates are extremely low. Since
Target has such a low credit card rate they raise the store interest rate to make up for the
difference. I would use the IRR, NPV, or the discount payback method to estimate these
rates.
2. What is Target’s capital-budgeting process? Is it consistent with the company’s business
and financial objectives?
The Capital Expenditure Committee (CEC) stated that the capital-budgeting process of
target was to add one hundred stores a year while maintaining a positive brand image. This
capital budgeting method goes hand to hand with the company’s business and financial
objectives.
3. Which of the five CPRs did you accept? Which project attributes did you consider as
part of your decision?
I first accepted the Whalen Court CPR. I chose this CPR because this location had the
highest percentage of college educated people than any other project after examining