Project Risk, Financing, and Monitoring

PROJECT RISK, FINANCING, AND MONITORING
Project Risk, Financing, and Monitoring
Assessment 3

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PROJECT RISK, FINANCING, AND MONITORING
Table of Contents
Part A.........................................................................................................................................3
Executive Summary...................................................................................................................3
Project Selection........................................................................................................................3
Cost Management......................................................................................................................4
Funding......................................................................................................................................4
Implementation and winding up................................................................................................5
Conclusion and Recommendation.............................................................................................6
Part B..........................................................................................................................................6
Equity Capital and Apple...........................................................................................................6
FCF Summary............................................................................................................................8
NPV of the Project.....................................................................................................................8
Recommendation on Investment................................................................................................8
Other sources of Finance............................................................................................................9
References................................................................................................................................10

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PROJECT RISK, FINANCING, AND MONITORING
Part A
Executive Summary
The report provides an overview of the issues related to project management. The report
starts with a brief on the two project selection methods- Net present value (NPV) and internal
rate of return (IRR) including the benefits and drawbacks of each. Apple is recommended to
use NPV criterion for project selection. The report continues with cost management tools and
strategies used during the course of a project and recommends Apple to include strategies like
cost estimation, budgeting, opportunity cost and relevant cost while evaluating and managing
a project. The report further details on the funding sources available to a company. Apple is
recommended to use a funding source which lowers the total cost of capital. Finally the report
details the processes involved in a project life cycle.
Project Selection
Key project selection tools used are:
Net Present Value- The is the difference between present value of all cash inflows and
outflows of a project over a period of time (Accounting Tools, 2018). Positive NPV projects
are wealth increasing. NPV is dependent on the discount rate used for discounting the
estimated future cash flows.
IRR- The internal rate of return is the discount rate which makes the present value of future
cash flows equal the initial cash outflow. For selection, projects with IRR greater than
required rate of return are selected
Where NPV and IRR rank mutually exclusive projects differently, projects are selected based
on NPV since high IRR does not guarantee higher profit figures.
For Apple, every Monday is a review day for evaluating the projects for resource
optimisation (Interaction Design Foundation, 2019). Products like iPhones emerging from

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PROJECT RISK, FINANCING, AND MONITORING
R&D activities in Apple have passed the feasibility stage majorly through NPV criteria where
discount rate used is required return on investment. Apple’s goal has always been to pursue
and maintain greatest possible profits through expensive products (Apple, 2018).
Consequently, NPV is the the major criteria in project selection since NPV provides inputs to
amount of profit addition from new project.
Cost Management
Cost manager is entrusted with the duty of managing costs during course of a project, from
initiation till close out (Barhale, 2019). The importance of cost manager emanates from
controlling of costs at optimum levels at all stages of the project and minimisation of future
liabilities to maximise the value of the project at the required quality standard.
Strategies recommended for Apple to manage projects are (Lohrey, 2019):
1. Estimation of costs- For Apple, cost estimation of projects would involve accurate
projections based on fixed, variable, direct and indirect criteria.
2. Budgeting- Through cost budgets, Apple management would be able to ensure that actual
costs do not go off limits during course of a project thus ensuring expected profits remain
above feasible limits.
3. Relevant cost strategy- While evaluating projects, Apple needs to include costs in a project
based on whether the costs can be avoided or reduced while going ahead with a project.
4. Opportunity cost strategy- For estimating project costs, Apple should ensure that
opportunity costs are considered instead of accounting costs.
Funding
Two basic finding sources are:
Equity-Apple can also raise equity from the market or use retained earnings which are a part
of shareholders’ equity (toppr, 2019). While no fixed payments are required to be made,