The net present value and internal rate of return is categorized on the basis of ranking for each of five proposals in order to easily take the appropriate decision regarding which product should be selected.
The overall ranking based on the analysis:
The Barn:It has the highest NPV to investment ratio ($16434), it holds highest NPV as compared to remaining proposals, and it also has highest IRR (16.4%).The lowest initial investment is involved, i.e. 13,000,000, High NPV and IRR. It tends to penetrate small markets and eliminates customers from driving 80-90 miles. Low NPV sensitivity and hurdle adjustment sales are advantages of this proposal.
On the other hand, it needs to take into account the size of the project. In addition to this, the project might not be looking at long term effects of requiring an update. The median income is low,i.e. $38,200 and population growth is also low, i.e. -3%.
Gopher Place:It also has the highest NPV to investment ratio or second to The Barn, it holds the second highest NPV ($12078) and it also has the highest population growth.High population growth rate, i.e. 67%. Among all the median incomes, it is ranked second. Highest IRR, i.e. 12.3%.
However, 10% change in sales can impact on NPV of the project by -28%. Furthermore, the cannibalization rate is 19%. There are 5 existing Target stores and investment is more than Proto.
Whalen Court:It has highest possible NPV ($25,900) but the investment required for this project is heavy, it seems to be a riskier investment.The impact on NPV after a worst case scenario is negative as well. In addition to this, the IRR of this project is lower (9.8%).Opportunity for a new store opening in a growth area. Dense foot traffic is 632,000 people, high fashion appeal and highest NPV, i.e. $25,900. Brand awareness and visibility are one of the advantages of this proposal.
Furthermore, massive investment is required, i.e. $119,300,000, $900,000,000 over Prototype. Lower IRR of 9.8%. It needs 1.9% more sales than forecasted in order to reach net present value of Prototype.
Stadium Remodel:It hasthe fourth highest NPV ($15700), it seems to be a risky investment for Target Corporation because in case of any worst case scenario, the NPV would drastically decline to over 50%. It is owned by Target and it is already in process of upgrading to a long term strong location and it has highest median income comparatively. The image of the brand is increased since thestore is in place since 1972.
The disadvantage of this proposal is that it is ranked lower on weighted analysis and Lower NPV, i.e. 15700. The NPV is sensitive to declining of sales. It would not help in growth of stores.
Goldieâ€™s Square:Â It has lower NPV ($300), it is also a risky investment for the company because NPV would drop to $3,773 in the worst case. It is not recommended to Target Corporation because there is high risk involved with this proposal. Over the 5 years, there has been a 16% growth in population, increasing it to 222,000. A strong percentage of adults who have completed 4+ years of college……………
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