The paper discusses project selection, cost management, funding, implementation, and analysis of Apple's equity capital in the context of project risk finance and monitoring.
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Project Risk Finance & Monitoring1 Contents Introduction......................................................................................................................................2 Part A...............................................................................................................................................2 Project Selection..........................................................................................................................2 Cost Management........................................................................................................................3 Funding........................................................................................................................................4 Implementation and Winding up.................................................................................................4 Analysis of Apple’s Equity Capital.................................................................................................5 Part B...............................................................................................................................................5 Conclusion and Recommendation...................................................................................................5 References........................................................................................................................................7
Project Risk Finance & Monitoring2 Introduction The paper is divided into two segments, part A and B that explains the functioning of the company Apple in the external environment. The first part of the report involves selection of the new project in the business environment of Apple for its growth and profitability. The cost management of the project is discussed along with the funding process and implementation. The company Apple require implementing the new product because of the depleting profits in the target market. Further, part B of the report evaluates the net change in the cost and profits of the company along with the suitability to invest in the new project. More details about the paper are discussed below: Part A Project Selection In order to select a specific project in the business environment, it is important for the company Apple to consider various crucial factors for making investment decision. It should be noted that it is important for the company to analyse the efficiency of the project before investing in it so as to analyse its profitability in the external environment. There are various tools and strategies used by the company to evaluate the profitability of the project that is discussed below: NPV: The Net Present Value model helps in analysing the lifecycle of the project in respect of earning. This process helps in analysing that whether the project is going to be profitable in long run or not. Negative NPV explains that the project is not profitable for the business to invest in long run. Higher the NPV shows that higher level of growth and profitabilitythecompanywillreceiveintheexternalenvironment(Leyman,and Vanhoucke 2016). Payback Period: the payback period technique refers to the amount of time that the business takes to recover the cost of an investment in the business. In simple terms, it is the length of the time that and investment will take in order to reach the breakeven point. The adequacy of an investment is directly linked to its payback period. Shorter payback period attracts investment (Senel Solmaz, Halicioglu, and Gunhan 2018).
Project Risk Finance & Monitoring3 Cost Benefit Ratio: This ratio is the simplest benefit measurement method that helps in elaborating the potential value of a project to help the company earn in the business environment. This strategy tool helps in analysing the cost of investing in the project against the value of return once it is completed (El Yamami, Mansouri, and Qbadou 2018). The company Apple earlier used the NPV tool to analyse the effectiveness of the project (Apple 2019). Cost Management A cost manager is a person who manages the costing of a project in business and makes sure that the project is completed within the estimated cost itself. The role of a cost manager in a business process is to evaluate the cost of the project and manage the budget as well. A cost manager analyse the project activities from starting to finish and speculate the investment of cost at each stage as well. Further, he also develops a schematic design to develop the activities of the business efficiently. A cost manager also notes all the cost components into the accounts and provides accurate cost information to the stakeholders as well. The cost manager also makes sure that the project is delivered on time along within the expected budget as well (Tonchia 2018). Summarizing the role and importance of cost manager in an organization, it should be noted that he is a person who takes all the financial decisions related to a product in the organization. Without approval of cost manager, not person can withdraw cash or purchase any material in the business environment. The cost manager of the company Apple should make use of effective cost management strategies in the environment to increase effectiveness of the cost in the business environment. The manager should make use of cost estimation and budgeting in the environment to increase the effectiveness of the strategies (Sarmento, and Renneboog 2016). The company should use cost estimation to manage the cost by initially forecasting the price of different activities in the complete project. The budgeting process helps in increasing the cost efficiency by analysing the weekly and monthly reports and managing the expenses on the basis of that (Fleming, and Koppelman 2016).
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Project Risk Finance & Monitoring4 Funding Funding is an important part project management in an organization as it helps them in gaining resources from different segments. There are various ways through which an organization can attain funds in the business environment that are by issuing equity shares, taking loan or by using personal resources. Best source of funding for an organization is by using personal resources because it does not give any kind of liability of repayment to the company. While, loans give burden to the company of high interest and early repayment policy as well. Equity financing makes the company distribute a part of their ownership to the people in the outside market (Heagney 2016). The advantages of equity financing are less risk, long term planning and less credit problems as well. Thus, the company Apple should make use of equity financing to attract funds in the business environment. The company will easily get funds through this type of activity because the brand image of the business is impressive and the investors always seek to attain a part of ownership of the company because it is reliable as well. The options available with the company are equity financing or debt financing. It is preferable for the company to involve in equity financing as it has less risks and credit problems as well (Schell 2018). Implementation and Winding up Every new process has several risks and benefits in the business that fluctuates the growth of the project. It is important for the company to analyse, consider all the factors present in the environment, and then initiate activities to increase the profitability from the project. Initially, while implementing the project the company faced issue in allocating the budget from the business. Environmental factors also acted as a barrier in initiating activities of the new project as the competitors were making it difficult for the business to focus on new project against all other facts (Chugh 2016). It was difficult for the organization to easily attain resources from the external environment and use them in the business. As the organization was aiming to achieve new heights in the environment thus they wanted to strategies activities and make use of resources in a way that no other company has performed or utilized. Further, it should also be noted that larger the company, higher the expectation of clients in the target environment. So, it was important for the organization to produce results from the project in such a way that it satisfies the investors and stakeholder in the business environment. However, the company utilized adequate infrastructure program and resources to achieve success in the business
Project Risk Finance & Monitoring5 environment. Further, in case of implementing the project, the company faced several issues in attaining innovative IT techniques in the business environment so as to grow and increase the profitability from the project as well (Steffen 2018). Analysis of Apple’s Equity Capital Yes, the company Apple has equity capital on issue in the external market. The companies issue shares in the target market so as to attain funds for the project from the investor. This process allow the shareholders to take a stake in the company’s equity and profits as well. In the year 2019, the share price of Apple reduced due to decreasing profits of the business. The products of the company faced battery issue due to which the company had to change battery of users that cost $11 million to the company. Resulting to this activity, the new products of the company also faced difficulty to survive and maintain a position in the market. The profits of the company reduced due to decreasing trade in the Chinese market. The price cut range of the iPhone 8, 8 Plus and XR in China also affected the profitability of the business in the target market. Part B The NPV of the project is $ 1.39 million. Yes, Apple should invest in the given project because the NPV of the project is positive that means that the project will be profitable for the company in coming year. Yes, issuing bond as a source of finance will affect the NPV in a negative way as the bonds will increase the discounted rate which will subsequently decrease the NPV. The negative NPV will reflect that the project is not profitable for the company to invest (Hopkinson 2017). Conclusion and Recommendation Thus, by concluding the above mentioned facts it should be noted that the paper represented information about the company Apple Inc. From the analysis, it was evaluated that the company Apple is aiming to invest in a new project in the business that is going to provide them profitability. The paper elaborates information about the project selection techniques along with the role and importance of cost managers and the ways in which funding should be initiated in
Project Risk Finance & Monitoring6 the business environment. Further, the part two of the report also elaborates the net present value of the new project. Positive NPV reflects that the company should invest in the business so as to achieve growth in the target market. Lastly, it should be recommended to the business that they should also make use of owner’s capital to invest in the new project of the company. Also, they should make use of project selection tool wisely so as to analyse the profitability of the new project in the external environment.
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Project Risk Finance & Monitoring7 References Apple., (2019) Apple at Work [online]. Retrieved from <https://www.apple.com/in/business/> [Accessed on 11 June 2019]. Chugh,S.K.,2016.Firmriskandleverage-basedbusinesscycles.ReviewofEconomic Dynamics,20, pp.111-131. El Yamami, A., Mansouri, K. and Qbadou, M., 2018. Multi-objective IT Project Selection Model for Improving SME Strategy Deployment.International Journal of Electrical and Computer Engineering,8(2), p.1102. Fleming, Q.W. and Koppelman, J.M., 2016, December. Earned value project management. Project Management Institute. Heagney, J., 2016.Fundamentals of project management. Amacom. Hopkinson, M., 2017.Net Present value and risk modelling for projects. UK: Routledge. Leyman, P. and Vanhoucke, M., 2016. Payment models and net present value optimization for resource-constrained project scheduling.Computers & Industrial Engineering,91, pp.139-153. Sarmento, J.M. and Renneboog, L., 2016. Anatomy of public-private partnerships: their creation, financing and renegotiations.International Journal of Managing Projects in Business,9(1), pp.94-122. Schell, J.M., 2018.Private equity funds: Business structure and operations. Law Journal Press. Senel Solmaz, A., Halicioglu, F.H. and Gunhan, S., 2018. An approach for making optimal decisions in building energy efficiency retrofit projects.Indoor and Built Environment,27(3), pp.348-368. Steffen, B., 2018. The importance of project finance for renewable energy projects.Energy Economics,69, pp.280-294.