Assessment of Apple Inc.'s Cost Management and Project Funding Methods

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PROJECT RISK, FINANCE, AND
MONITORING

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EXECUTIVE SUMMARY
Apple Inc. designs manufacture and markets media devices, mobile communication and also
personal computers. Apple Inc. uses the cost-benefit analysis while selecting the projects. The
cost manager of Apple focuses on the reallocation of the cost from the significantly less
important task to the more important task. The Apple Corporation relies on the issue of bonds
for funding the new and upcoming projects. Apple can also use huge cash reserves and
retained earnings for the funding of new projects. The report has also stated that Apple is
planning to undertake a new project for launching a new product named IPhoneXI. The cost
analysis states that the new project would not bring in any revenues, which means that the
company should not undertake the project.

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TABLE OF CONTENTS
EXECUTIVE SUMMARY...................................................................................................................2
INTRODUCTION............................................................................................................................. 4
PART A........................................................................................................................................... 5
PROJECT SELECTION...................................................................................................................5
COST MANAGEMENT.................................................................................................................6
FUNDING....................................................................................................................................7
IMPLEMENTATION AND WINDING UP.......................................................................................8
PART B......................................................................................................................................... 11
A] EQUITY CAPITAL ANALYSIS AT APPLE..................................................................................11
B] APPLE’S NEW IPHONEXI.......................................................................................................13
1) FREE CASH FLOWS..................................................................................................... 13
2) NPV.................................................................................................................................. 13
3) INVESTING DECISION...................................................................................................... 14
4] PROJECT FUNDING...........................................................................................................15
CONCLUSION............................................................................................................................... 16
REFERENCES.................................................................................................................................17

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INTRODUCTION
Apple Inc. is engaged in the designing, manufacturing, and marketing of the media devices,
mobile communication and also personal computers. The organization is also engaged in
undertaking the sale activities of various software, accessories, services and the third party
digital applications. This report is being prepared with the sole objective of analyzing the risk
and financing of Apple Inc. the first part of the report would highlight the key aspects of risk
management associated with projects and also in understanding their use in the proposed
business projects for managing and limiting the risks. The second part of the report would be
based on conducting the capital budgeting analysis for Apple Corporation. Apple is also
engaged in the selling of new bonds for financing the share buyback program and providing
dividends to its shareholders.

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PART A
PROJECT SELECTION
TOOLS AND PRACTICES USED TO SELECT A PROJECT FOR APPLE
It is very essential for organizations to select the most viable project, which would reap the
highest benefits to the organization in terms of profits and revenues. The two most beneficial
methods which can be used for the selection of a project by Apple are the benefits
measurement method and the constrained optimization methods (Garg, 2016).
 Benefit measurement method
This method aims at measuring the benefits of a particular project against other projects. This
can be done by using several different methods comprising up of factors to be analyzed such as
the discounted rate of return and the discounted cash flow method (Kerzner, 2018).
 Constrained optimization methods
This method is being commonly used for undertaking larger projects and requires the company
to make several calculations. After making the calculations the company can decide whether
the projects need to be selected or rejected by the organization (Garg, 2016). The most
adaptive method is a cost-benefit analysis.
ANALYSE AN EXAMPLE OF THE PRACTICES USED BY APPLE TO SELECT BETWEEN PROJECTS
Apple Inc. is making the use of the cost-benefit analysis while selecting the projects. The
organization focuses on analyzing the costs and the benefits of all the projects. The apple
focuses on ensuring that the costs of the projects are being kept at the minimum and also that
the profits and the revenues by undertaking the project are maximum. The apple focuses on
ensuring that the proportion of the overheads cost in the sales price of the products is at the
lowest. These overheads are being measured by considering the general, administrative and
the selling costs of the projects.

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COST MANAGEMENT
ROLE AND IMPORTANCE OF A COST MANAGER
The cost manager is majorly responsible for estimating the costs which would be incurred for
the completion of the project. The cost manager should also adopt an all-round approach for
managing the costs which need to be incurred by the organization. The cost manager is
responsible for several activities which include the early planning stages of the project along
with ensuring the successful completion of the project for obtaining the desired objectives (Luo
et al., 2015). The cost manager is also held responsible for all the components of cost for a
particular project and also for providing the organization and the stakeholders with the
required information pertaining to costs. The cost manager is also responsible for ensuring that
the project is being delivered within the stipulated time and budget (Batool et al., 2016). Thus,
it can be said that the cost manager plays a vital role in the project management team of the
organization and is majorly responsible for coordinating with the other members of the team
for controlling the costs.
STRATEGIES TO MANAGE PROJECT COSTS
There are numerous strategies which can be adopted by the cost manager for managing the
overall costs of the project. The manager should focus on preparing a cost management plan
which would be beneficial in establishing the cost targets and also comparing the actual cost
with the targets when the project is being actually undertaken (Cooper, 2017).
The project costs can also be managed by the reallocation of the resources when the project is
being undertaken. There are several costs which can rise at any given point of time and can
impact the initial cost projections (Roy et al., 2016). Therefore, the cost manager can focus on
reallocating the cost from the significantly less important task to the more important task.
Along with these strategies, it is of vital importance to ensure that the cost manager is creative
and aware of the existing market situations, which are expected to have an impact on the costs
of the project (Cooper, 2017). The project manager is also required to engage himself in the

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ongoing research activities for determining the fluctuations in the business landscape having an
impact on the project and its budget.
COST MANAGEMENT STRATEGIES WHISH SHOULD BE ADOPTED BY APPLE
The cost management strategies adopted by Apple are very efficient and are helping the
company in increasing its overall revenues. The strategy adopted by Apple aims at decreasing
the overall overheads as a total percentage of its sales. The overheads are being measured by
the organization like sales, general and administrative costs (Rosenman, 2011). The
organization aims at reducing the overall cost as a percentage of the overall revenues. This cost
management strategy adopted by Apple is also being considered as a huge contributor to the
overall success of the company.
FUNDING
SOURCES OF FUNDING FOR PROJECTS
The projects can be funded by the organization by using a wide variety of techniques. The major
sources of funds are:
 Loans- These are the short term sources of finances and therefore, they usually carry a
higher rate of interest with them. These funds need to be repaid in fixed installments
and in fixed time intervals.
 Debentures- These are the long term loans which are being secured by a charge against
the assets of the organization. The interest payment is being provided to the debenture
holders by the company on a priority basis, before the shareholders (Okagaki and Dean,
2016).
 Share Capital- The shares are being issued by the company for getting finances by
providing a share in the profits to the investors. The shareholders are also entitled to
receive capital gains by selling the shares. Also, the value of dividends for the
shareholders is based majorly on the profits of the organization.
 Retained Earnings- the companies do not invest all the profits earned by them in
operations. Rather, they keep a certain amount of profits for contingencies or for future

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projects. This is being referred to as retained earnings and is a very useful source of
finance available with the company (Hogan et al., 2017).
FUNDING OPTIONS ARE AVAILABLE WITH APPLE
For undertaking new projects, Apple Inc. would require a huge amount of funds. These funds
could be acquired by Apple by using both the short term and the long term sources of finance.
From the annual report of the organization, it is evident that the organization has huge retained
earnings amounting to USD 98330 million (Apple Inc, 2017). These are the funds which have
been kept as a portion of the previous profits of the organization to be used in future projects.
Along with this, the Apple Corporation can also rely on issuing bonds as a source of finance for
funding the new and upcoming projects. The company also has a huge amount of cash and
other marketable securities, which is outside the U.S (Dillet, 2017). Therefore, in situations
when the company is undertaking new projects within the U.S., it can rely on the issue of bonds
for raising finances.
IMPLEMENTATION AND WINDING UP
PROCESS AND ISSUES ASSOCIATED WITH STARTING AND FINISHING A PROJECT
The process associated with the management of the project ranging from the implementation
to the winding up of the project could range from the starting of the project to the finishing of
the project. The major steps involved are as follows:
 Initiation of the project
At this stage, the idea is being approved and the project charter is being established.
 Planning of the project activities
At this stage, all the project activities are being planned and the duties and tasks are being
assigned to specific people based on their caliber. Also, the persons responsible for the
monitoring of the activities are being specified for ensuring the successful completion of the
project (Luo et al., 2015).

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 Execution of the project
At this stage, the project is actually implemented. This includes managing of the team, the
quality, and the communication existing amongst the team.
 Monitoring and controlling the project
This step of the plan needs to be adopted at all the project stages to ensure that the project is
being undertaken as per the plan of the project. This includes activities such as controlling,
scheduling and budgeting (Batool et al., 2016).
 Winding up of project
At this point, the project is being closed as the objectives of the project are being accomplished
or have either failed. The process of winding up needs to be implemented for closing or winding
up of the project.
Despite these strong project management activities, the successful completion of the project
could be impacted by several issues comprising up of poorly defined goals and objectives,
unrealistic deadlines, improper communication, insufficient team skills, and inefficient risk
management among others.
RESOURCE, INFRASTRUCTURE, AND ENVIRONMENTAL ISSUES IMPACTING PROJECTS IN APPLE
Apple is majorly a technology company. Therefore, the successful completion of the project is
based majorly on the information technology infrastructure which is being developed by the
organization for supporting the new projects (Luo et al., 2015). Apple has built and established
a very strong IT infrastructure which helps the organization in the development of new projects
and ensuring that the organization can launch technologically upgraded new products. This
would be helpful for the organization in gaining a competitive advantage (Kerzner, 2018).
All the projects require certain resources for the completion of their projects. These resources
can be in terms of financial resources, human resources and also other material resources
which are required for the successful completion of the project. Apple is a well-established

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organization and focuses on taking many sustainability measures which are helpful in the
sustainable growth of the organization (Batool et al., 2016). Therefore, Apple has to take into
consideration the numerous environmental, infrastructural and resources factors which are
involved in the successful completion of the project.

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PART B
A] EQUITY CAPITAL ANALYSIS AT APPLE
As stated in the annual report of 2018 of apple, the company has an authorized share capital of
12,600,000 shares out of which the company has issued 4,754,986 shares and the 5,126,201
shares are outstanding (Apple Inc, 2017). However, it is also evident that Apple is concentrating
on issuing bonds with the objective of financing its capital return program amounting to USD
300 million (Dillet, 2017). The sources have revealed that Apple is selling new bonds for
financing the share buyback program and providing dividends to its shareholders.
ORGANIZATIONS RAISING EQUITY CAPITAL
Many organizations raise capital as they are in immense need of capital for fulfilling either the
short term or the long term decisions and expenditures related to those decisions. By raising
the equity capital, the organizations can raise money for fulfilling their short term needs or
funding the growth investments. Raising equity capital requires the selling of shares. By selling
the shares, the organizations sell the ownership of the company in return for a fixed amount of
cash. The major source of raising equity capital is indulging in an initial public offering.
ANALYSIS OF APPLE SHARE PRICE IN 2019
The following figure depicts the share prices of Apple in the previous year and is helpful in
determining the trends in the changes in the stock prices of Apple in 2019 as compared to the
year 2018.

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(Source: Apple Yahoo Finance, 2019)
After the downfall of the shares in the year-end 2018, the shares of Apple Inc. are experiencing
a boom on the stock exchange. Apple has been successful in deciding and establishing a buying
rate and a price target of USD 260 (Apple Yahoo Finance, 2019). The company officials have
stated that the company is expected to experience an increase in the selling prices, unit
shipments and profits until it would experience a negative catalyst. All this would contribute
significantly towards the increase in net revenues for the company by the sale of iPhones. The
organization has established a price target of $260, which is at a higher side by 17% excluding
the dividends (Rains, 2019). The shares of Apple have been trading at a historic lower value
with lower free cash flow yields. This is, therefore, signaling a higher valuation of the shares of
Apple. The only risks faced by apple are that of the brand degradation of Apple which might
lead to a decline in the unit sales growth of the company. Apple has been very successful in
innovating new products and thus, creating a multi-million dollar industry. All these rapid
innovations and developments are also creating a spark of growth for the share prices of apple.