Target's Investment Strategy Comparison Paper

Target is finding itself in an interesting position due to changes in the market. We are in a transitioning period where the market is becoming internet based. As younger generations get more tech savvy, retail stores are losing sales due to online companies like amazon who are capable of two day shipping and membership benefits. We are capable of seeing the effects in analysis of both of these companies.
Part a) Investment strategy and cost of capital
Target has many components that create a more pleasant experience for a customer in comparison to Walmart. The famous red bulls-eye company attracts customers not by its prices, but its customer service and employee helpfulness. According to an article, by shephyken, “the company may not be

Walmart emphasis on price cuts. According to an article, “Walmart has maintained its low-price leadership position due to its continued focus on suppliers” (HowWalmartMakesMoney). This gives Walmart bargaining powers to its suppliers. This is one of the factors that keeps Walmart as one of the largest companies in the world. Another strategy remains investing in their stores. The company wants to improve the shopper’s accessibility to go to their physical store. The company was recognized as a traditional grocery, but they are being pushed to the side by other competitors. (HowWalmartMakesMoney). The company plans to open offer fresh food, or prepared food to improve shoppers experience. The company wants to make their website more user friendly to increase their sales. Walmart’s “E-commerce sales were $12.2 billion in the fiscal year 2015” (HowWalmartMakesMoney). The company has to compete with Amazon which holds a difficult job but plans to make several technology developments. Walmart’s biggest investment strategy is to deliver a great experience for the customers and the employees themselves. The article continued to argue, “Historically Walmart was criticized for its employee unfriendly policies, which include lower minimum wages, minimal reskilling and training programs, and unclear career growth” (HowWalmartMakesMoney ). If the workers aren’t taken well care of, that rubs off onto the customers. The employees see

The tax rate was solved by, the income tax deducted, divided by earnings before tax. The cost of debt was calculated by adding the total debt of years 2017 and 2016, and then dividing the calculated number by two. Then the interest expense found in the income statement was divided by the number that was added and divided by two. Target’s cost of debt was 2.48% while Walmart’s cost of debt was 2.39%. Capital asset pricing model (CAPM) was used to find the cost of equity. The beta for each company was found in Yahoo finance. The risk-free rate was selected on a 10-year hold off the government’s site, which was 3.06%. The expected market return is 11%. The cost of equity for Target is 7.89% and Walmart’s cost of equity is 5.38%. This helps companies decide on whenever to take a project or not. The weighted cost of equity for a company was found by dividing the total equity by the total value of the company. To find the total equity, the outstanding shares need to multiply with the share price. The total debt is located in the income statement. Add the total equity and total debt of the company, and the total value of the respective company is found. Target has a weight of equity of 58.17% and weight of debt of 41.83%. Walmart has a weight of equity of 65.77% and weight of debt of 34.23% With all the missing pieces solved the weighted average cost of capital