Your friend, Liz, loves to shop at Target and is now interested in investing in the company. Tom, another friend, has told her that Target’s debt structure is risky with obligations of nearly 74% of...

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Your friend, Liz, loves to shop at Target and is now interested in investing in the company. Tom, another friend, has told her that Target’s debt structure is risky with obligations of nearly 74% of total assets. Liz sees that debt on the balance sheet is 65% of total assets and is confused by Tom’s comment. Write an explanation to Liz discussing the debt structure of Target and why Tom thinks Target is risky. Be sure to explain clearly what information appears on financial statements, as well as what information does not appear directly on the financial statements. Use the information below in your discussion and respond to at least two of your fellow students’ postings.

At fiscal year-end February 2, 2008, Target Corporation had the following assets and liabilities on its balance sheet (in millions):





















Current liabilities



$11,782



Long-term debt



15,126



Other liabilities



2,345



Total assets



44,560




Target reported the following information on leases in the notes to the financial statements:
Total rent expense was $165 million in 2007, $158 million in 2006, and $154 in 2005, including percentage rent expense of $5 million in 2007, 2006, and 2005. Most long-term leases include one or more options to renew, with renewal terms that can extend the lease term one to more than fifty years. Certain leases also include options to purchase the leased property.
Future minimum lease payments required under noncancellable lease agreements existing at February 2, 2008, were:
























































Future Minimum Lease Payments (in Millions)



Operating Leases



Capital Leases



2008



$ 239



$ 12



2009




187




16



2010




173




16



2011




129




16



2010




123




17



After 2010



2, 843




155



Total future minimum lease payments



$3694 (a)



$232



Less: Interest (b)





(105)



Present value of minimum capital lease payments





$127 (c)




a) Total contractual lease payments include $1,721 million related to options to extend lease terms that are reasonably assured of being exercised, and also include $98 million of legally binding minimum lease payments for stores that will open in 2008 or later.
(b) Calculated using the interest rate at inception of each lease.
(c) Includes current portion of $4 million.

Answered Same DayDec 23, 2021

Answer To: Your friend, Liz, loves to shop at Target and is now interested in investing in the company. Tom,...

David answered on Dec 23 2021
115 Votes
Acquisition Decisions and The Effect of Debt on the same.
As investment decisions are on the most sensitive de
cisions that are being taken and the basis for which
is very difficult to decide as it varies from one investor to the other. One of the type of investments are
the acquisition of the targets as it needs proper analysis of the position of the target company by
considering both the present and future aspects of the firm. In the present report the debt aspect of the
target firm is being considered and analysis is being made on the present and future obligations of the
target company which in the present case is known as Target Corporation.
Debt Analysis of Target Company
Debt Structure implies the ratio of the long term obligations of the firm which is known as debt and the
total self invested funds by the shareholders known as equity shareholder funds and also consists
retained earnings. Debt includes all interest bearing liabilities to outsiders and equity includes all capital
and reserves related to members of a company. As debt structure is one of the main factor on which...
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