Risk Management and Capital Budgeting Decisions at Apple Inc.

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PROJECT RISK, FINANCE, AND
MONITORING

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EXECUTIVE SUMMARY
The report has been successful in saying that Apple using the cost-benefit analysis for the
selection of the various projects. It is being insured at Apple that the projects with the least
operating cost are being selected to ensure that the profits are being maintained. With the
objective of funding new and upcoming projects apple would make significant use of bonds and
the cash reserves existing with the organization. The report also analyzed the benefits and risks
associated with the new project of Apple iPhone XI. The analysis has come to any calculation at
the project must be rejected as the cash flows and the net present value of the project are
negative and would not be beneficial for the organization.

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TABLE OF CONTENTS
EXECUTIVE SUMMARY...................................................................................................................2
INTRODUCTION............................................................................................................................. 4
PART A........................................................................................................................................... 5
SELECTION OF THE PROJECT......................................................................................................5
MANAGING COSTS.....................................................................................................................6
FUNDING....................................................................................................................................7
IMPLEMENTATION AND WINDING UP.......................................................................................9
PART B......................................................................................................................................... 10
A] EQUITY CAPITAL AND APPLE................................................................................................10
B] IPhoneXI.............................................................................................................................. 12
1] FREE CASH FLOWS OF PROJECT.......................................................................................12
2]NET PRESENT VALUE.........................................................................................................12
3] INVESTING DECISION.......................................................................................................13
4] PROJECT FUNDING ANALYSIS...........................................................................................13
CONCLUSION............................................................................................................................... 15
REFERENCES.................................................................................................................................16

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INTRODUCTION
Apple Inc. is a technological giant who is engaged in the designing, manufacturing and
undertaking the marketing activities for mobile communication, mobile devices and also
personal computers. This report would focus on analyzing the financial and the risk factors of
Apple Corporation. The report is being divided into two sections. The first section of the report
is aimed at analyzing the aspects of risk management pertaining to a particular project and also
in understanding the use of various business projects in limiting the risk of the organization. The
second section of the report what conduct capital budgeting analysis for Apple incorporated.
This would be done weather calculation and analysis free cash flows and the net present value.

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PART A
SELECTION OF THE PROJECT
TOOLS AND PRACTICES USED TO SELECT A PROJECT FOR APPLE
It is very necessary for a business organization to select the most appropriate project that can
help the organization in order to extract more profit and revenues (Garg, 2016). The two most
beneficial and effective approach that can be used for the project selection by Apple is the
constrained optimization and benefits measurement approaches that help Apple Inc. in order
to gain the highest amount of revenue and profit.
Constrained Optimization Approach
This approach is mostly used in larger projects in which the company requires to make various
calculations that can help in deciding whether the project is appropriate for the company or
not. Based on these calculations project is selected or rejected by the company (Garg, 2016).
The purpose of this approach is minimizing or maximizing some functions of the project such as
maximizing profit, minimizing cost, minimal error, etc.
Benefit Measurement Approach
One of the various types of approaches company use, in order to select a project, benefits
measurement approach. This method is best and more suitable for the projects that are simple
and easy to calculate benefits gained from such projects. In this method company estimates or
calculates the benefits that can gain from the project and based on the highest benefit, the
company select the project (Kerzner, 2018). The main purpose of the benefits measurement
approach is to realize a profit with respect to the company's investment in the project. The
most suitable and adaptive approach is a cost-benefit analysis.
ANALYSE AN EXAMPLE OF THE PRACTICES USED BY APPLE TO SELECT BETWEEN PROJECTS

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Apple Inc. effectively uses cost-benefit analysis in order to select the appropriate project for the
organization. The company emphases on the cost and benefits that derive from all the projects
as well as the company aim that the costs and expenses are kept low and the revenue and
profit by undertaking the project are high. The company is also focused on ensuring that the
cost of the expenses in the cost of sales of the products and services is the lowest. The general,
administrative and cost of selling the products are being considered in the overheads.
MANAGING COSTS
ROLE AND IMPORTANCE OF A COST MANAGER
The cost manager plays a very critical role in order to manage the cost of the project while
undertaking a project for the company. The cost manager should use a versatile approach in
order to manage the cost and expenses that occurred during the project (Luo et al., 2015). The
cost manager is liable for planning for the project which ensures that the project is successfully
complete and objectives are well achieved by the organization with respect to the project. The
cost manager is also responsible for estimating the cost that can incur in the project and
presents the information to the stakeholders and company for future activities. The cost
manager needs to make sure that the project is been delivered on time and no irrelevant
additional cost incur in the project (Batool et al., 2016). Thus, it can be said that the role of the
cost manager in the project is very important as the manager is effectively managing the cost
and effectively communicate with the other members of the team in order to control the cost
of the project.
PROJECT COST MANAGEMENT STRATEGIES
The cost manager has the option of adopting several strategies which would be helpful in
managing the costs associated with the projects. A cost management plan should be prepared
by the manager for establishing cost targets. The actual costs incurred can be compared with
the targets with the objective of analyzing the differences between the estimated and the
actual costs of the project (Yoder et al., 2017).

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The resources can also be reallocated by the project manager for ensuring that the available
resources are being efficiently managed by the manager. This is required as during the actual
implementation of the project, certain costs can arise which were previously not estimated by
the cost manager (Lock, 2017). This might also lead to changes in the estimated cost budget
and thus will drive the need for reallocation of the costs to the strategically more important
tasks.
Along with all these activities, it is also very essential for the project manager to keep himself
engaged in the cost management strategies and research activities. This would enable the
project head in determining the fluctuations in the project and its impact on the budget of the
project.
COST MANAGEMENT STRATEGIES AT APPLE
The efficient cost management strategies of Apple are helpful for the company in increasing the
overall revenues of the organization. Apple's strategy is aimed at decreasing the overheads of
the company from the overall sales revenue (Brueck et al., 2016). For this objective, the
organization is focusing on the reduction in administrative, general and sales costs. One of the
major success factors for the organization is the adoption of this cost strategy by the
organization.
FUNDING
SOURCES OF FUNDING
Organizations can finance different projects by using various sources of finances. The major
sources of funding available with the organizations are:
 Share capital
The company can raise funds by issuing shares to the public at large for a fixed amount of cost.
This also provides the shareholders with a share in the profits of the organization. When the
shares are being sold, the shareholders can also enjoy benefits in terms of capital gains

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(Okagaki and Dean, 2016). The shareholders receive dividends on the shares on the basis of the
net profits generated by the organization.
 Debentures
The long term borrowings of the organization are also called as debentures. These borrowings
are secured by charging against the assets of the company (De Marco, 2018). The debenture
holders are being provided with the interest on their borrowings, and are preferred over the
shareholders.
 Loans
The loans are the short term debts which are borrowed by the company on a fixed rate of
interest (Murphy, 2017). These have comparatively higher interest rates and are required to be
repaid in fixed installments in fixed time intervals.
 Retained earnings
A portion of the revenues of the organization is being retained by them to be used as working
capital or for use in future contingencies. These are the internal sources of funds which are
available with the company (De Marco, 2018).
FUNDING OPTIONS AVAILABLE WITH APPLE
For taking new projects a huge amount of funds are required by the organization. Apple can
acquire different by using both the short term and long term sources of finance. The annual
report of the organization for the year 2019 depicts that the organization has maintained a
huge amount of retained earnings which can be used for future projects (Lahiff, 2018). These
funds are a part of the previous year’s revenue of Apple.
In addition to this, the company is also telling on the bond issue for financing the upcoming
projects. The reports provided by the organization also States that the company has used cash
reserves and marketable securities outside the US region (Hutchison et al., 2016). In situations

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when Apple is planning Investments in us, it can use these marketable securities and cash for
funding the projects.

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IMPLEMENTATION AND WINDING UP
PROCESS OF INITIATING AND WINDING UP A PROJECT
The implementation of any particular project starts from the initiation of the project and ends
with the execution and winding up of the project. At the initiation stage, the project charter is
being established after the approval of the initial idea. The second stage is the planning of
various stages of the project and assigning duties to the subordinates based on the caliber of
the people. The responsibility of monitoring the project activities is also being assigned which
helps the organization in ensuring that the project activities are being completed on the
stipulated time (Oluikpe, 2015). The next step is very crucial as the project is being executed at
this stage. The execution of the project involves team management, quality management and
also ensuring harmony within the team. Further, the project and the relevant decisions need to
be adopted by all levels of employees and at all project stages. This step comprises of activities
such as scheduling, controlling and budgeting. The final stage in the overall process is the
winding up of the project, as the objectives have been accomplished and also in cases when the
project has failed the achievement of objectives and needs to be closed.
Despite the adoption of these well-defined project activities, the project can also be impacted
by several factors which comprise up of issues such as unrealistic deadlines for the particular
tasks, poorly defined objectives, inefficient team skills, improper communication, and
inappropriate risk management.
ENVIRONMENTAL ISSUES, RESOURCES AND INFRASTRUCTURE IMPACTING PROJECTS AT
APPLE
Apple is a technological giant. The organization establishes a strong IT infrastructure for
ensuring that the new projects are being supported and successfully accomplished. The strong
IT infrastructure will be helpful for the organization in launching new products which are
technological upgraded and thus gaining a competitive advantage with an industry.
The successful completion of the projects by apple what require many resources which can be
in terms of human resources natural resources and the material resources (Zhang, 2018). Apple

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focuses on undertaking sustainability measures for ensuring sustainable growth of the
organization. Apple should also consider factors related to the resources infrastructure
availability and environmental issues which might have an impact on the successful completion
of the project.
PART B
A] EQUITY CAPITAL AND APPLE
The annual report of Apple Inc. has depicted the following numbers:
Particulars Number of shares
authorized share capital 12,600,000
Issued share capital 4,754,986
Outstanding share capital 5,126,201
(Apple Inc., 2018)
Apple Inc. has shown interest in issuing bonds amounting to USD 300 million for financing the
capital return program. The funds acquired by the selling of bonds by the organization would
also be used in the financing of the share buyback program and also for providing dividends to
the shareholders of the company (Bengtson et al., 2018).
RAISING THE EQUITY SHARE CAPITAL
The organizations can acquire funds for fulfilling the short term and the long term needs by
issuing the equity share capital. The issue of the equity share capital helps the organization in
funding several growth investments by raising money. For raising equity capital, the
organization indulges in selling the shares (Zhang, 2018). This also results in the sharing of the
ownership in return for a fixed amount of cash. The organizations can raise equity share capital
by providing initial public offering or by issuing shares to the existing employees of the
organization.

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APPLE SHARE’S ANALYSIS- 2019
The below diagram is presenting the trends in the share prices of Apple Inc. in the previous
year.
(Apple Inc. 2019)
From the figure, it is evident that the shares of Apple have experienced a growth trend as
compared to the previous year. The organization has successfully decided and established the
target price of USD 260. The company management believes that until industry experiences a
negative catalyst, an organization would be benefited and terms of the increase and unit
shipments the selling price of the products and the profits (Gu et al., 2015). This would also
mean that the increase in sales of iPhones and other products for Apple is contributing to
increasing in net revenues. In the current year, the target price has been set at USD 260, 17%
higher than the previous year. The stocks of the company are being traded on the stock
exchange at lower values and are yielding low free cash flow (Apple Inc., 2018). This is a signal
of the high evaluation of the shares. Despite all these factors the company is facing risk in terms
of brand degradation. All of this would lead to a decline in unit sales growth.