Optimizing Target Corporation’s Capital Structure: A Financial Analysis

Kiera Quinn

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.ACCOUNTING

Faculty Research Mentor: Kakolyris, Andreas  

Abstract:

This project analyzes Target Corporation’s capital structure to determine the mix of debt and equity that minimizes its weighted average cost of capital (WACC) and maximizes firm value. Target is a major U.S. retailer that sells a wide range of products, including apparel, groceries, and household goods, through both physical stores and its online platform. Studying capital structure is especially interesting for Target because the retail industry operates with tight margins, high inventory levels, and significant competition, making financing decisions critical to maintaining profitability and financial flexibility. Using financial data and market assumptions, the project models how different leverage levels affect Target’s beta, cost of equity, credit risk, and overall cost of capital. A synthetic credit rating approach is applied to estimate borrowing costs under various debt scenarios and to evaluate how firm value changes as leverage increases or decreases. This allows us to compare Target’s current capital structure to a range of hypothetical alternatives. Our findings are summarized and presented in a poster, where we discuss whether Target’s existing financing strategy appears close to optimal and what adjustments, if any, could improve shareholder value.