1. Why does Target Corporation
1. Why does Target Corporation issue debt?
2. When was the last time Target Corporation issueddebt?
3. What was the specific reason (provide evidence) thatTarget Corporation needed to raise funds?
4. How much did Target Corporation issue?
5. As a potential investor, would you invest in TargetCorporation bonds? Why or why not?
6. With interest rates potentially increase, what do youthink will happen to existing bonds? And how will TargetCorporation react to increased interest rates?
1. Target Corporation issue debt to meet its obligations towardsoperating leases of its stores and to fund its expansion plans. Thecompany also needs debt to fund its operations and make capitalinvestments.
2. The last time that Target Corporation issued debt was in thefinancial year 2017 when the company issued long term debt to thetune of $750 million. Specifically the company had issued unsecuredfixed rate debt in October 2017 bearing an interest rate of 3.9%and having maturity date of November 2047.
3. The specific reason for which Target raised funds was to fundits operations and to make capital investments for the purpose ofexpanding its operations in the future.
The evidence for this can be found in Target’s 2017 annualreport. The same can be accessed atfile:///C:/Users/user/Downloads/2017%20Annual%20Report.pdf
4. Target Corporation issued $750 million of long term debt in2017.
5. Yes, as a potential investor I will invest in TargetCorporation bonds. Target’s bonds currently yield around 3.5% andthis is higher than 30 year treasury yield of 2.5%, 10 yeartreasury yield of 1.75% and S&P 500 yield of 2.08%. Also thelong run default probability of Target bonds is very low, on arelative basis.
6. With increase in interest rates the existing bonds of TargetCorporation will become less attractive for investors. This isbecause investors will look to park their investments ininstruments that are offering higher interest rates. This will leadto a decline in demand for Target’s bonds and as a result itsprices will fall in the market.
Target Corporation will react to increased interest rates byoffering their bonds at a discount so as to make it attractive fornew investors.