ILLUSTRATION 6.3: Valuing Target: Dealing with
Operating Leases
Targetisoneofthelargestspecialtyretailersintheworldand
has acquired a reputation for being cool with low prices.
Althoughithasoperationsaroundtheworld,itgetsthebulk
of its revenuesfrom the UnitedStates.We willvalue the
company using the following assumptions:
- In2004,Targetreportedoperatingincomeof$3,601
milliononrevenuesof$46,839million.Themarginal
taxrateforthecompanywas37.80%.Thisoperating
income wasafteroperatinglease expensesof $240
million, and the expected operating lease
commitmentsforfutureyearsarelisted(inmillions
of dollars):