MBA643 Assessment 3: Project Risk and Finance Report for Apple

This report provides an in-depth analysis of project risk management, cost management, and capital budgeting within Apple Inc. The report begins with an executive summary, followed by an examination of project selection techniques, cost management strategies, and financing options, including t...Read More

Assessment 3: Individual Report

Executive Summary
The study is based on the well-known company, which is engaged in the technology sector,
named as Apple Incorporation. In this report the key aspect related with the project risk
management and action that are applied in the proposed future project, which assist in the
management and mitigation of the risk. There are some tools and technique which are applied by
the project manager for the determination of execution of the project. In addition, role of the cost
manager is very important for the success of project. Further, funding of the project is another
problem, which should be decided by considering the advantages and disadvantages of source of
finance. Problems related with execution and closing up of project should be determined by
company.

Table of Contents
Part A...............................................................................................................................................4
Selection of Project......................................................................................................................4
Cost management.........................................................................................................................5
Source of finance.........................................................................................................................6
Issues of implementation and closing up.....................................................................................7
Conclusion and Recommendation...............................................................................................7
Part B...............................................................................................................................................8
(a).................................................................................................................................................8
(b).................................................................................................................................................9

PART A
In the given report, Apple Company is considered for the developments of the key aspects of
project risk management.
Selection of Project
Selection of the project is very significant task for the company. Apple Company should invest
in the project related with iPhone, iPad, or Mac. Company should develop innovative or familiar
interface, which easily support the business. Along with this, the product must be secure,
efficient, and reliable. Since, the Apple Company is recognized by its brand name; therefore
company should not make the investment in ordinary type of product.
For the decision regarding the investment in project or not, there are several technique. With this
aspect, Net Present Value method, Internal Rate of return, Payback period, Accounting Rate of
return some useful tools which can be applied by the company to analyze the project. Apple
Company applies NPV method for ascertainment of decision regarding the investment in project
(Joslin, and Müller, 2015).
It is assumed that, company wants to invest in project X and project Y. the initial outflow and
related inflows due to project is given below –
Table 1 Statement of NPV
Cash Flows Project X Project Y
Initial Expenditure $5M $4M
Predicted Cash Inflows

Year 1 $1.5M $1M
Year 2 $2M $2.5M
Year 3 $1.75M $2M
Year 4 -
Discounting Rate 10% 10%
NPV $1.52M $1.73M
The company should make the investment in Project Y, due to the higher Net Present Value.
Cost management
The succession of the project is based on the management of cost associated with the project.
The main task of the cost manager is to formulate the expected costs which are going to be
incurred in the future due to the implementation of the project (Hornstein, 2015). Further, he
should make the appropriate strategies so that actual cost incurred in the project must be as per
the budget made by company (Todorović & et.al 2015). Along with this, for meeting up the
requirement of finance, the suitable source of financing, by which the fund can be raised for the
funding project, should be determined by the cost manager.
Management of the company also takes the better technique with the help of cost manager. As
the cost manager prepares the timely report, which contain the significant information about the
cost related with the project, requirement of funds, time and many other aspect, which is useful
for the manager of company (Badewi, 2016). Further, they must plan in such a way so that
optimum utilization of the resources is possible and wasteful expenditure can be minimized. It is
recommend to the cost manager they should make the proper planning and on the basis of this

prepare the budget. Along with this they also consider the efficiency of the employees, so that
work can be complete as per provided deadlines (Amir, Auzair, and Amiruddin, 2016).
Source of finance
One of the important decisions for the implementation of the project is the source of finance for
the funding of project. There are two sources of finance, such as internal source of finance and
the other is external source of finance. Financing of the project through the internal source, is
considered as internal source of finance. On the other hand, if the funding of the project by the
company by taking the funds from the outside parties, then it is considered as external source of
finance (Cox, and Nguyen, 2018).
Financing through the retained profits, reduction in working capital or by selling of assets is
comes within the criteria of internal source of finance. It is less risky for the company, a
company does not require timely payment of interest or principal amount. Further, existing
control over the company by the present members is also not diluted. However, company cannot
take the advantage of tax on the payment of dividend (Arcand, Berkes, and Panizza, 2015).
Financing through issue of debenture, preference shares, borrowing by banks and many other are
comes within the criteria of external source of finance. In this type company does not have to
share the percentage of their earnings, it only requires the periodical payment on interest and
principal amount. However, company has to pay interest and principle even in case of loss
(Balaban, Župljanin, and Ivanović, 2016).
On the basis of above facts, Apple Company should fund its project by the retained profits, asthe
company has sufficient amount of retained profits.

Issues of implementation and closing up
There are several issues consist in the implementation and the winding up of the project. The
company must comply with the all rules and regulations approved by the government. Further, it
should provide the proper training and education to the employee and objective of the project
must be well communicated (Nowak, 2016). Company should consider the environmental norms,
and establish necessary tool and technique, which assist in the reduction of excess greenhouse
emission. In addition, natural resources should be used by company in an appropriate manner.
Before the execution of any project, company should consider, whether it is adequate
infrastructure, such as proper space, appropriate Information technology related infrastructure
and many others (Wang & et.al 2015). Further, in closing of a project, there are also some issues,
such as cancellation of the contract with supplier, giving the delivery to the consumers, proper
documentation, releasing the worker and many others.
Conclusion and Recommendation
On the basis of above facts and observation, it has been drawn that company should apply the net
present value method for the assessing of the investment if the project, this technique suggest,
whether the investment in the project will be beneficial for company or not. Along with this, cost
manger should make the proper planning and budget so that optimum utilization of the resources
is possible and excess cost can be avoided (DhaifAllah, & et.al 2016). It is recommended that
company should raise the funds through the internal source of finance, which are the retained
earnings. Further, company also considers the infrastructure, environmental and availability of
the sufficient resources for the project implementation.

PART B
(a)
Equity capital issue in case of Apple Company
The common stock holder equity capital issue of Apple Inc as on 29th September 2018 is
40,201,000 ($000).
Why do companies raise equity capital?
There are several reasons for raising the funds through equity financing, which are as follows –
 It is less risky source of finance, as it does not require any monthly or periodical fixed
payment of interest or principal amount.
 Further, it does not take funds out of the business.
 If the business suffered from losses then company is not required to make any payment to
the equity shareholders (Agénor, and Canuto, 2017).
Due to the above reasons company raise funds through equity capital.
Impact on share price of Apple Company in the year 2019
In the year 2019, the share price of the company reduced as compare with the previous year.
Reason behind the share price
The main reason behind the decrease in the share price of company is the tension by the investor
about the increase in the sale of product of company. Further, service sector of the company does
not provide adequate services, therefore the confidence among the investors reduced. Along with

this, variation in the rates of currency, interest rate, inflation rate and many other reasons behind
the change in share price of company (Spence, 2019).
(b)
Computation of the future cash flows by Apple’s new IPhone XI
Table 2 Statement Showing Future Cash Flows for this Project (Amount in Million)
Particulars Year 1 Year 2 Year 3 Year 4
Revenue
$
2.80
$
2.80
$
2.80
$
2.80
Variable Cost
$
0.56
$
0.56
$
0.56
$
0.56
Contribution
$
2.24
$
2.24
$
2.24
$
2.24
Depreciation
$
1.00
$
1.00
$
1.00
$
1.00
Opportunity Cost of
Introducing New
IphoneX1
$
1.00
$
1.00
$
1.00
$
1.00
Earnings Before Tax
$
0.24
$
0.24
$
0.24
$
0.24
Tax (30%)
$
0.07
$
0.07
$
0.07
$
0.07
Earnings After Tax $ $ $ $

0.17 0.17 0.17 0.17
Depreciation (Non-
Cash Expense)
$
1.00
$
1.00
$
1.00
$
1.00
Cash Flows over the
Period
$
1.17
$
1.17
$
1.17
$
1.17
Calculation of Net Present Value From this project
Table 3 Statement Showing Net Present Value for this Project (Amount in Million)
Particulars Year 0 Year 1 Year 2 Year 3 Year 4
Initial Capital Outlay
$
(5.00)
$
-
$
-
$
-
$
-
Working Capital
$
(0.03)
$
-
$
-
$
-
$
-
Revenue
$
-
$
2.80
$
2.80
$
2.80
$
2.80
Variable Cost
$
-
$
0.56
$
0.56
$
0.56
$
0.56
Contribution
$
-
$
2.24
$
2.24
$
2.24
$
2.24
Depreciation
$
-
$
1.00
$
1.00
$
1.00
$
1.00

Opportunity Cost of
Introducing New IphoneX1
$
-
$
1.00
$
1.00
$
1.00
$
1.00
Earnings Before Tax
$
-
$
0.24
$
0.24
$
0.24
$
0.24
Tax (30%)
$
-
$
0.07
$
0.07
$
0.07
$
0.07
Earnings After Tax
$
-
$
0.17
$
0.17
$
0.17
$
0.17
Depreciation (Non-Cash
Expense)
$
-
$
1.00
$
1.00
$
1.00
$
1.00
Receipts from sale of
Machinery
$
-
$
-
$
-
$
-
$
2.00
Working Capital
$
-
$
-
$
-
$
-
$
0.03
Cash Flows over the Period
$
(5.03)
$
1.17
$
1.17
$
1.17
$
3.20
Discounting Factor 1 0.909 0.826 0.751 0.683
Present Value of Cash
Flows
$
(5.03)
$
1.06
$
0.97
$
0.88
$
2.18
Summation of Total
Outflows
$
(5.03)
Summation of Total
Inflows
$
5.09

Net Present Value
$
0.06
 It has been assumed that, no capital loss or gain arises on sale of assets.
 Research and development cost is considered as sunk cost as it is already incurred by
company.
Reasons of investment in the project by Apple Company
The decision of the investment in any project is very significant task. Project manager should
apply several tool and technique by which he can ascertain whether the project will be beneficial
for company or not. With this aspect, net present value method is a good technique for the
evaluation of the capital budgeting project. This technique assist whether the investment will
generate the future benefit to the company or not, by considering the time value of money. If the
NPV of the project is positive that means company should make the investment. In the above
case, it has been seen that NPV of Apple’s new iPhone XI is positive. In other words it can be
said that, present value of future inflows are more than the present value of outflows, which
indicates about the benefit which can be generated by the company from the investment.
Therefore, Apple Company should make the investment in the iPhone XI.
Financing of this project from ordinary shares
For the expansion of the business, company requires the finance. For this, company can issue the
equity shares for raising the funds. It cannot be said that issue of equity shares is the cheapest
source of finance. There are number of reason, in which raising funds thorough debenture is
cheaper then as compared with issue of ordinary shares (Foley, and Manova, 2015). Since, the

company can get the tax benefit on the interest payment, which is not possible in case of
distribution of dividend. further, in case of insolvency, equity holders of the company does not
have right, in spite debenture holder can claim on the assets of company, therefore the risk can
be minimized in this type of financing. Due to the above reasons, there may be possibility that
raising funds through issue of debt is cheaper as compared with issue of equity. However, in case
of well-established company, investor wants to take possession in the ownership of company,
and they will show more interest in buying the equity shares. In such type of company, issue of
ordinary shares will be cheap source of finance. Same in the case of Apple Company, due to the
performance and brand name, investor will always ready to buy the equity shares; therefore there
may be possibility that for Apple Company, issue of equity shares for raising the funds is
cheapest source of finance.
Further, if the Apple Company could refinance only by bonds, then it will make the impact on
the Net Present Value. Since, issue of bonds requires the timely payment of interest, which
should be deducted while computation of the cash flows from the project. Therefore, the Net
Present Value from issue of bonds will decrease. However, benefit of tax is available on the
payment of interest.

REFERENCES
Books and Journals
Agénor, P.R. and Canuto, O., 2017. Access to finance, product innovation and middle-income
traps. Research in Economics, 71(2), pp.337-355.
Amir, A., Auzair, S.M. and Amiruddin, R., 2016. Cost management, entrepreneurship and
competitiveness of strategic priorities for small and medium enterprises. Procedia-Social and
Behavioral Sciences, 219, pp.84-90.
Arcand, J.L., Berkes, E. and Panizza, U., 2015. Too much finance?. Journal of Economic
Growth, 20(2), pp.105-148.
Badewi, A., 2016. The impact of project management (PM) and benefits management (BM)
practices on project success: Towards developing a project benefits governance
framework. International Journal of Project Management, 34(4), pp.761-778.
Balaban, M., Župljanin, S. and Ivanović, P., 2016. Sources of Finance for Entrepreneurship
Development. Economic Analysis, 49(1-2), pp.48-58.
Cox, J. and Nguyen, T., 2018. Does the crowd mean business? An analysis of rewards-based
crowdfunding as a source of finance for start-ups and small businesses. Journal of Small
Business and Enterprise Development, 25(1), pp.147-162.
DhaifAllah, B., Auzair, S.M., Maelah, R. and Ismail, M.D., 2016. Inter-organizational cost
management and open book accounting: a review. Asian Journal of Accounting
Perspectives, 9(1), pp.67-96.

Foley, C.F. and Manova, K., 2015. International trade, multinational activity, and corporate
finance. economics, 7(1), pp.119-146.
Hornstein, H.A., 2015. The integration of project management and organizational change
management is now a necessity. International Journal of Project Management, 33(2), pp.291-
298.
Joslin, R. and Müller, R., 2015. Relationships between a project management methodology and
project success in different project governance contexts. International Journal of Project
Management, 33(6), pp.1377-1392.
Nowak, E., 2016. Cost control and its role in controlling company operation. Prace Naukowe
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Todorović, M.L., Petrović, D.Č., Mihić, M.M., Obradović, V.L. and Bushuyev, S.D., 2015.
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Wang, Z., Wang, Q., Zhang, S. and Zhao, X., 2018. Effects of customer and cost drivers on
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Online
Apple Inc (AAPL). Financials. 2018. Available through <
https://finance.yahoo.com/quote/AAPL/balance-sheet?p=AAPL>. [Accessed on 28th May 2019]
Spence, E., 2019. Apple Loop: Massive iPhone 11 Leaks, Tim Cook's Big Battery
Problem, iPhone XR Price Cuts (online). Available

through<https://www.forbes.com/sites/ewanspence/2019/01/18/apple-news-iphone-xr-iphone-
11-price-cut-new-leak-rumor-usbc-qualcomm-smart-battery-case/#393b215a1a8c>[Accessed on
23 May 2019]