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Question: Describe and critique Target's capital-budgeting system.  Give specific considerations to the role of the real estate managers and the makeup of the CEC.

03 Oct 2022,7:59 PM

 

Describe and critique Target's capital-budgeting system.  Give specific considerations to the role of the real estate managers and the makeup of the CEC.

 

Target Corporation is a team assignment.  This case puts your team in the role of Target Corporation's CFO as he considers the pros and cons of a variety of capital-investment proposals. The CFO is preparing his thoughts prior to a meeting of the Capital Expenditure Committee (CEC) with other Target senior executives to consider the merits of ten capital-project requests (CPR), five of which were expected to require extra attention. Each CPR has a "dashboard" that summarizes the critical inputs used to compute the net present value (NPV) and internal rate of return (IRR) as well as data about the type of investment (new store or remodel), market size, location, customer-demographic information, as well as the sensitivity of NPV and IRR to changes in various inputs. You will be asked to evaluate the CPRs by balancing corporate-growth objectives with the economics of the projects.

Expert answer

 

Target's capital-budgeting system is designed to allocate resources efficiently and effectively across the company. The system includes a Capital Expenditure Committee (CEC) which is responsible for making decisions on how to best use Target's funds. Real estate managers play an important role in the CEC, as they are able to provide insights on potential investments and expenditures.

 

There are several considerations that should be taken into account when evaluating Target's capital-budgeting system. First, the system may be biased against certain types of investments, such as those with longer payback periods. This can lead to sub-optimal decision making and may result in missed opportunities. Second, the composition of the CEC may also impact its effectiveness. For example ......

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