This document discusses project risk, finance, and monitoring in the context of a technology company. It covers topics such as project selection, cost management, funding levels, and winding up. Suitable for students studying finance and project management.
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Running head:PROJECT RISK, FINANCE, AND MONITORING Project Risk, Finance, and Monitoring Name of the Student: Name of the University: Author’s Note: Course ID:
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1 PROJECT RISK, FINANCE, AND MONITORING Table of Contents Executive Summary:........................................................................................................................2 Part A:..............................................................................................................................................2 Implementing the selection of project by Technology Company by identifying the process:........2 Enhancing the project efficiency by evaluating the measures of cost management:.......................3 Evaluating the funding levels of Technology Company:................................................................3 Assessing the process of winding up and its implementation by the company:..............................4 Conclusion and recommendations:..................................................................................................5 Part B:..............................................................................................................................................5 Answer to question a:......................................................................................................................5 Answer to question bi):....................................................................................................................8 Answer to question bii:....................................................................................................................9 Answer to question biii:...................................................................................................................9 Answer to question biv:.................................................................................................................10 References list:...............................................................................................................................12
2 PROJECT RISK, FINANCE, AND MONITORING Executive Summary: Theprocedureadoptedbythetechnologicalcompanyforgaugingthefinancial performance so that a higher level of income is generated has been evaluated in the assessment. It is evidentfrom the analysisconducted thatthere can be improvementin the overall performance of company with the utilization of the cost management, relevant section, winding up, funding and enactment. Part A: Implementing the selection of project by Technology Company by identifying the process: The procedureof conductingananalysisof adequateselectionof projectby the technology companies is identified directly. Such selection of the project is done as it helps in ensuring generation of high level of return. The financial feasibility of the project for the companies operating in technology sector is determined by the technique of capital budgeting such as net present value, internal rate of return and payback period. Net present value helps in evaluating the viability of the project, as the present value of the future inflow of cash is determined based on time value of money and the same is compared with the time value of money. Using the payback period, the company would be able to identify the time that would be taken by the project to generate the amount of money invested initially. Furthermore, internal rate of return is another metric of capital budgeting that helps in estimating the profitability that would be generated by the potential investment. The discount rate equates the net present value of cash flow to zero is given by internal rate of return (Aversano 2016). Therefore, the process of
3 PROJECT RISK, FINANCE, AND MONITORING selecting the project by the Apple Inc. is done by using all various investment techniques of the advancement of the computation for determining the most economic viable investment option. Enhancing the project efficiency by evaluating the measures of cost management: Inordertomakeanimprovementintheprojectefficiencythatincorporatesthe technological factors, one important technique that is used by the organization is the measures of cost management. There are several measures involves in the cost management that assists in lowering the expenses that would be incurred in the completion of the project. Such measures include planning of budget, time management and tracking of time, which helps in evaluating the total expenses incurred and lowering it to the acceptable level. The future cash flow of the projectsassociatedwith the expenses and income is analyzed by the organizationusing budgeting techniques. In addition to this, using the method of tracking the time helps in assessing the efficiency of the workforce that has been employed to complete the project. The opportunity available by evaluating the different level of activities using the analysis of time management is done by reducing the time taken to complete such activities and enhancing the level of productivity. Therefore, for improving the efficiency in an adequate manner, it is required by the organization to employ the required and relevant methods of cost management that would ultimately contribute to increase the level of profits generated by the business. Evaluating the funding levels of Technology Company: There are different types of funding such as equity fund and debt financing that can be used by the organizations in technology industry as they provide them great assistance in funding requirements for completing the project. Companies can make use of both the methods that helps
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4 PROJECT RISK, FINANCE, AND MONITORING in increasing the finance cost level and supporting the project. Financing the project using debt increases the fixed cost of financing by creating a direct impact on the insolvency position of the company. On other hand, the solvency position of the project would remain confined if the financing were done using equity capital. It is so because this method of finance helps in reducing the cost of fixed finance and thereby increasing the profitability of the project by taking adequate steps. Therefore, the profitability condition of the project might be negatively impacted by the advantages and disadvantages of the methods of finances (Mohamed and Kamal 2015). Therefore, from the analysis of both the methods of finances, it can be inferred that it would be beneficial for the company to utilize the method of debt financing to fund their project. It is so because the timely commencement of the project can be ensured by the adopting the method of debt financing. Hence, it is recommended to Apple Inc. to employ the debt financing as it would help the project to generate sufficient profits. Assessing the process of winding up and its implementation by the company: Prior to the initiation of the project, organization is required to have some prerequisites such as conducting an in depth research that helps in evaluating the requirements and condition of the project. The level of expenses that would be incurred and the revenue generated from the investment undertaken by the company is analyzed by getting involved in research activities. It can therefore be inferred that if the company is not engaging in sufficient research work, then there exist the possibility of issues associated with the investment project. Managers might fail to make feasible investment decisions if the wrong valuation and results is portrayed by the techniquesof appraising investment. Hence, it is considered crucial for the company or organization to engage in the research of the project that they are intending to undertake so that
5 PROJECT RISK, FINANCE, AND MONITORING they are able to evaluate the relevant and suitable techniques of investment appraisal and according determining the profitability of the projects in the form of benefits (Imegi and Nwokoye 2015). Furthermore, the company in the event of life conducts the process of winding up or tenure of the project has been completed. The overall expenditure of capital at the end of project are clear off at the salvage value and the remaining amount is added to the project’s cash inflow. In addition to this, in the process of winding up of the company, a direct damage on environment is also done, as the future usage of landscape is alternated (Christiansenet al.2015). Conclusion and recommendations: From the evaluation of all the facts associated with the techniques of investment appraisal would help Apple in generating adequate level of profits and accordingly lowering the level of risks of the projects undertaken. Therefore, the conditions of cost management, process of selection and the problems of implementation in the Apple Inc would be secured by Apple Inc by evaluating the process. Part B: Answer to question a: The overall performance of organization is evaluated by analyzing the performance and the Apple Inc. can evaluate the performance, which is an important aspect for the investors. It
6 PROJECT RISK, FINANCE, AND MONITORING has been found from the analysis of the performance of Apple Inc. that there is sufficient level of cash available for supporting the operations and hence the management of the company do not intend to issue shares. It is clearly mentioned by the company that the discounts provided to the customers forms the basis of determining the overall profits. Furthermore, it is also indicated from the analysis of Apple Inc. from the analysis that it is not appropriate for the organization to conduct the current level of sales. It is so because the sales volume affects the capability of the company and this is done for ensuring that the adequate level of returns is available at the end of financial year. The low level of revenue generated by Apple Inc. is alerted by the investors and shareholders anticipation. It has been found that low level of revenue generated is attributable to the discounts that are provided to the customers on the new line of products. The valuation done by the analysts about the decline in the price of shares has resulted in the change in anticipated level of revenue of Apple Inc. Since the management decision on the adoption of the share price on product line is influences, the share price and the management did not intend to issue shares (Albertijnet al.2016). The growth prospects of the company are directly affected by the equity finance and it is when the operations and productivity is to be increased, the company should employ equity finance and thereby supporting the future operations. Using the equity financing would not contribute to increase the solvency position of the company (Abor 2017).
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7 PROJECT RISK, FINANCE, AND MONITORING Figure 1: Apple Inc share price. (Source: Finance.yahoo.com 2019) The graph presented above depicts the movement in the share price of Apple Inc for the year2019.Themovementinthepriceofsharesincorporatestheactionstakenbythe management that is relevant to the movement in the share price. It has been found from the analysis of the share price of Apple Inc. that there has been a high level of growth. As on 3rd January, 2019, the price of shares stood at $ USD 142.00 compared to the highest price of 211.84 on 3rdMay, 2019. Therefore, from the trend of the share price, there has been higher and higher lows during the year 2019. After achieving significant growth in the level of price, the decline in the share price is attributable to the news that presented an anticipation of the fall in revenue. Furthermore, the month of June witnessed an increase in the share price and noted a decline in the price on 3rdJune, 2019 at level of 173.30. On other hand, after the investors panic subsided that has resulted an increase in the valuation, value has risen to the levels of 190.15.
8 PROJECT RISK, FINANCE, AND MONITORING Therefore, the share price of Apple Inc. is directly impacted by the performance of company along with the changes in the perspective and demand of investors. Moreover, the valuation of the share price is impacted by the fear of investors brought by the relevant news about the Apple Inc. The total amount of income generated by Apple Inc. in the first quarter is influenced by the adoption of the measures of discount based on the management decisions. The considerable fall in the share price of Apple Inc. impacted the valuation of Apple Inc. Answer to question bi): The table presented above depicts the evaluation of the free cash flow of the project and the analysis of the proposed project by Apple Inc. generates positive outcome. This is so because the cash generated from the project is more than the amount that is invested initially. The total amount of the initial investment made by the company included the working capital and the overall expenditure of capital. The financial feasibility of the project has been directly evaluated by the overall flow of cash within the organization and thereby generating a higher level of
9 PROJECT RISK, FINANCE, AND MONITORING income (Albertijnet al.2016). Total amount of initial investment is -$5,030,000 and the inflow of cash generated by the project stood at $ 3,699,000 for the first three years and $ 3,263,000 generated in the fourth year of operation. Answer to question bii: The table presented above depicts the net present value of project undertaken by Apple Inc. for which the value is positive at 264961. This positive NPV implies that high level of income would be generated. The future cash flow of the project is determined by discounting the cash flow of the project using the appropriate cost of capital and thereby generating higher level of revenue. Apple Inc. is able to segregate the projects using the techniques of investment appraisal for improving the valuation of the firm and generation of income in the long run (DeBoeufet al. 2018). Answer to question biii: It can be concluded from the analysis of the figures presented in the table above using the techniques of investment appraisal that the process of valuation of Apple Inc. is increased by researching the investment needs.
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10 PROJECT RISK, FINANCE, AND MONITORING Answer to question biv: From the evaluation of the facts of different investment appraisal techniques such as debt and equity financing, it has been found that the funding the project using equity financing is considered to be cheapest. This is attributable to the fact that the finance cost of the company is negatively impacted by the return that is expected from the investors (Gamsakhurdia and Maisuradze 2016).
11 PROJECT RISK, FINANCE, AND MONITORING References list: Abor,J.Y.,2017.EvaluatingCapitalInvestmentDecisions:CapitalBudgeting. InEntrepreneurial Finance for MSMEs(pp. 293-320). Palgrave Macmillan, Cham. Albertijn, S., Drobetz, W. and Johns, M., 2016. Maritime investment appraisal and budgeting. InTheInternationalHandbookofShippingFinance(pp.285-313).PalgraveMacmillan, London. Andor, G., Mohanty, S.K. and Toth, T., 2015. Capital budgeting practices: A survey of Central and Eastern European firms.Emerging Markets Review,23, pp.148-172. Aversano, N., 2016. Capital Budgeting.Global Encyclopedia of Public Administration, Public Policy, and Governance, pp.1-6. Batkovskiy, A.M., Batkovskiy, M.A., Klochkov, V.V., Semenova, E.G. and Fomina, A.V., 2016. Implementation Risks in Investment Projects on Boosting High-Tech Business Production Capacity:AnalysisandManagement.JournalofAppliedEconomicSciences.Romania: European Research Centre of Managerial Studies in Business Administration,11(6), p.44. Christiansen, J., D'angona, R. and Bell, C., Evantix GRC LLC, 2015.Method and system for assessing, managing and monitoring information technology risk. U.S. Patent Application 14/282,347. DeBoeuf, D., Lee, H., Johnson, D. and Masharuev, M., 2018. Purchasing power return, a new paradigm of capital investment appraisal.Managerial Finance,44(2), pp.241-256.
12 PROJECT RISK, FINANCE, AND MONITORING Gamsakhurdia, T. and Maisuradze, K., 2016. The theoretical and practical aspect of selecting the capital budgeting methods.European Scientific Journal, ESJ,11(10). Hall, J.H. and Sibanda, T., 2016. Capital Budgeting Practices: An Empirical Study of Listed Small en Medium Enterprises.Corporate Ownership & Control, p.200. Imegi, J.C. and Nwokoye, G.A., 2015. The Effectiveness of capital budgeting techniques in evaluating projects’ profitability.African Research Review,9(2), pp.166-188. Kengatharan, L., 2016. Capital budgeting theory and practice: a review and agenda for future research.Applied Economics and Finance,3(2), pp.15-38. Mohamed, A. and Kamal, M., 2015, October. e-Learning Capital Budgeting Decision Models: A ComparativeAnalyticalStudy.In2015FifthInternationalConferenceone-Learning (econf)(pp. 231-236). IEEE. Rigopoulos,G.,2015.AreviewonRealOptionsutilizationinCapitalBudgeting practice.International Journal of Information, Business and Management,7(2), p.1. Sadgrove, K., 2016.The complete guide to business risk management. Routledge. Sarwary,Z.andUmans,T.,2017.Puzzlingthechoiceofcapitalbudgetingtechniques. InSwedish national accounting conference 2017. Saxena, A.K., 2015. Capital budgeting principles: bridging theory and practice.Academy of Accounting and Financial Studies Journal,19(3), p.283. Zhang, Q., Huang, X. and Zhang, C., 2015. A mean-risk index model for uncertain capital budgeting.Journal of the Operational Research Society,66(5), pp.761-770.
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