Explore BrainMass

Explore BrainMass

    Capital Projects for Target Corp.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Based on the information below (under supporting information) complete these steps:
    1. Select two capital projects for Target.
    2. Justify how the projects make sense for Target given its current situation. One of the projects should be a domestic project and one should be an international project.
    3. Estimate the revenues and expenditures separately for each project and then calculate the project's NPV, MIRR, and IRR.
    4. If either or both of the projects cannot be started for twelve months explain and demonstrate how you would lock in the rate on the project using financial futures. Also explain how this impacts each project.
    5.How will the financing be handled? Explain in detail and apply appropriate calculations.


    Analyze performance of Target Corp.
    Complete a financial analysis on Target Corporation. Use all releveant rations. Make sure and include the Dupont formula, MVA, EVA, and ROIC. Use any other metrics that are important. Compare all this data to the firms' 3 to 5 year trends, industry averages, and/or industry leader. Analyze the strengths and weaknesses of Target Corp.

    From this financial analysis of Target Corp., outline an action that the firm should take. Develop pro forma financial statements (balance sheet, income statement, and cash flow statement) to show the condition of the company if the action is taken. Bases on the pro forma analysis created, should the action be taken by the company? Support ideas or analyze differences.
    STEP 1

    Dupont Analysis: Total asset turnover X Net profit margin;
    Return on Assets = 1.65 X 4.78 = 7.89
    MVA analysis:
    Equity market evaluation - debt and equity invested.
    $, 55,212 - $37,345 = $17,867.
    Economic Value Added:
    Net operating profit after taxes less (Capital X cost of capital)
    $2, 787 - ($37,345 X 0.06) = 546
    Return on invested capital
    (Total capital/earning before interest, taxes and dividends) X 100
    = 7.4%.

    STEP 2

    Some other indicators:

    The Quick ratio is 0.77 where as the Industry figure is 0.29.
    The operating margin in 7.74 whereas the industry figure is 6.50.
    The net profit margin is 4.78 whereas the industry figure is 4.01.
    The return on equity is 19.58 whereas the Industry figure is 19.24

    These figures show that the performance of Target Corporation is better than the industry average.

    In addition,

    1. The total revenue of Target Corp has increased during the last five year period from 37,410 to 59,490,
    2. The net income has increased during the last five years from 1,623 to 2,787.
    3. The total current assets have increased from 11,935 to 14,706
    4. The total assets have increased from 28,603 to 37,349.

    STEP 3

    The action that can be taken by Target Corp is to maintain its financial discipline:
    It should maintain its debt equity structure in future;
    The quick ratio should be closer to 1.00.
    The collection cycle length should be maintained:
    Finally, the most important step is to maintain the financial health in which it is at present. This included maintaining the market share, the cost and financial structure, the loyalty of customers and profitability.

    STEP 4

    Proforma Financial Statements:

    Balance Sheet
    Current Assets 15,500
    Total Assets 40,400
    Current Liabilities 9,800
    Total Debt 9,600
    Total Liabilities, 20,200
    Total Equity 20,600

    Proforma Income Statement (Includes)
    Total Revenue 63,000
    Operating Expenses 57,200
    Net Income 3,200

    Proforma Cash Flow Statement: (Includes)
    Total Cash from Operations 1,400
    Total Cash from Investing (2,500)
    Total Cash from Financing 1,300
    Net change in Cash 240;

    It is expected that the changes that have been suggested will improve:

    Dupont Analysis: Return on Assets will improve from 7.89 to 8.5%
    MVA analysis: results will improve from $17,867.to $19,000
    Economic Value Added: will improve from 546 to 660
    Return on invested capital will improve from 7.4%.to 8.2%.

    © BrainMass Inc. brainmass.com June 1, 2020, 5:31 pm ad1c9bdddf

    Solution Preview

    The response addresses the queries posted in 964 words with references.
    //Before writing about the 'Ansoff matrix' and revenue and expenditure for the project, it is essential to know about the two capital projects for Target Corp. One should know about the operations of the projects, in order to analyze the matrix, successfully.//


    1. Two capital projects for Target Corp. May include:-

    It may expand its operations by adding capacity to its existing product lines. This is known as Related Diversification. Since it is an established company in US, it can expand its line of sporting goods and toys and make the kids and children as the target market. Thus, it can increase its plant capacity to manufacture more toys in the market. Besides it can also add new production facilities to manufacture a new toy for the target market (the kids and children up to the age of 12 or 14). Both of these are independent projects and they serve different purposes and thus both can be taken up.

    It can also expand its operations through market development in the field of apparel and accessories as well as in the food items. By entering the markets in other countries like India, Canada, China, Europe, etc, it can mark a strong presence in the international markets. It can resort to joint ventures with companies which are already established in these countries.

    //Above is the discussion of two capital projects for Target Corp. moving to the next step, description about the Ansoff matrix and revenue and expenditure for the project is to be focused upon.//




    Solution Summary

    The response addresses the queries posted in 964 words with references.