Why does target use different hurdle rates for the store and the credit cards (9% and 4%, respectively)?

Target use different hurdle rates for the store and the credit cards (9% and 4%, respectively) because the need for different hurdle rates simply shows the variation in the risk of individual projects and differences in the risk of corporate divisions.

The idea is that the higher the risk of the project, the higher the hurdle rate should be. For instance, Target makes use of different hurdle rates to determine the net present value of future cashflows accounts not only the time value of money but also the risk of future cash flows. As a result, the firm assigns discount rates of 9% for the store sales and 4% for the credit cards sales to represent the different costs of capital for funding store operations versus funding credit card receivables.

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

disadvantages of leasing a vehicle: no vehicle equity and mileage limitations

disadvantages of purchasing a vehicle: large down payment and vehicle depreciation

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