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MBA643 Project Risk, Finance, and Monitoring Assignment - Individual Report, Kaplan Business School, Australia

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PART A - Imagine they have been engaged by Apple (Apple Inc APPL) (or a similar technology company) to develop a report on key aspects of project risk management and how they might be used in proposed future projects in order to manage and limit risk.

Answer - Project Risk, Finance, and Monitoring Individual Report

Executive summary

Apple Inc is a popular and reputed organization that is central to this paper in developing a strong understanding on their project management initiatives. The content that follows reflects widely on the managing project by looking into the risks that can come. External or environmental risks, along with the risk coming as lack of funds and technical issues can be major problems in finishing the project in the most successful manner. Strategies like managing risk registers and identifying with the demands from stakeholders and market trends are very important activities that are required to be performed before the commencement of the project. Managing cost and cash flows will also help in stabilizing the money at the organization and help in reducing chances of loss. The content also discussed the issues and proper recommendations are provided based on the nature if risks and the company profile nearing the end of the report.

i) Project selection - How should the company you select determine what projects to undertake and what ones to avoid? What tools, measures, and practices are available to project analysts in this industry?

Project selection - In order to develop a sound understanding on the most beneficial and risk free projects, the company must conduct an effective market research and a research on the project's background before bringing it on board. It is important to understand the projects from the risk effective perspectives that allow one to understand the impact and frequency of risks that can come if opted for that project (Kerzner and Kerzner, 2017). Hence, estimating the risk factors will be important to take decisions on what projects to adapt and what to avoid. The selection of the project must be done by a team at the very initial stage after researching the market and the area of contribution of the project. Understanding the project's future scope is equally important and must be analyzed well prior to selection.

There are various tools and resources available to the market analysts that can help in developing the research and the understanding on the right and wrong projects. It is very important to notice that these tools can be the Microsoft word office package, the computers, digital and technological software, the social media and online platforms, the research materials; both primary and secondary, that can work as effective tools. Using these tools can be effective and the company must use specific teams to utilize them as per the requirement of the time by analyzing the risk factors and type of projects that is going to be undertaken.

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ii) Cost management - What is the role of project cost management for your chosen company? Why is it important? What strategies or approaches should the company you have chosen adopt in order to effectively manage project costs?

Cost management - The project cost management for this chosen company is going to be very effective and important. The project cost management is going to control, monitor and manage the cash flows and the total financial transactions in a way that will reduce the risk factors associated with the cost and money (Kaplan and Atkinson, 2015). In simple terms, it will effectively manage the money at the organization for the project. This is very important as it will help the organization to save and invest the right amount of money in the most effective way that will not bring risk or loss to the company (Henri, et al., 2016). It can be stated that the company will be hugely benefitted by gathering adequate funds from the right, genuine and authentic source to undertake the right work and that will allow the organization to meet their project objectives within time.

In relation to the cost management, the company must take certain initiatives, strategies and actions to manage the costs for the project. These are- planning the budget, Cost tracking, Project change controlling, Steps to manage time, and also hire the most skilled professionals under the finance and management department that will enable the project cost management run successfully.

iii) Funding - What funding measures or options are generally available to assist companies like the one you have chosen to fund proposed new projects? The report should include reference to any implications associated with different funding types or models.

Funding - In order to fund new projects that are going to be beneficial for the company, many fundraising agencies can be considered as helping hands. There are banks and financial organizations that do provide financial assistance to organizations in order to manage and develop their projects (Berk and Binsbergen, 2015). Also, the option of applying for a bank loan is equally another effective option that can gather funds.

The organization needs to understand the best funding opportunities that can help in developing the overall infrastructure of the project. The sponsor also needs to understand the project that can contribute to the overall culture if the organization and help in benefitting the funder as well. Several factors like Project's outcome, project's time limit, the amount of funds requires, The funding type that is most preferred etc are all considered under the funding area. Bank loans can surely be a great way to acquire funds. This particular source is the most reliable and does not have many or much risks in cheat funding and false sponsorship promises. The national Reserve Banks and the State banks can be great funders t fund the project of the company and the money will be credited immediately after the application for funds is accepted without any reservations. The benefit of this source is that it is quick, easy to rely on, safe and also effective in nature.

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iv) Implementation and winding up - Are there any particular issues associated with commencing a project that your company must consider? Why are they important? Who do they impact or affect? What happens when the project finishes? How are projects wound up? Do they just end or are there resource or infrastructure considerations? Are there environmental issues associated with the end of a project?

Implementation and winding up - The selected Company, Apple Inc. must understand that there could be various issues that can emerge prior or during the commencement of the project. These issues need to be identified at the very beginning as they will help in taking necessary measures to eradicate them. These issues are very important to get identified, if not then they might hinder the project is achieving the objectives. Serious obstructions can emerge if these issues/ risks are not addressed. It must be noted that these issues will affect the stakeholders by equally affecting the smooth and swift way of completing the project (Powell et al., 2017). The stakeholders are primarily the employees, the customers and the suppliers.

The project's completion is going to benefit the organization by reaching the objectives that will eventually earn profits for the company. It has to be noted that there are various environmental issues that can harm the project. It is not necessary for the project to get hindrances in successful completion after the course; the issues can arise midway or prior to the commencement as well. In that respect, it is very much recommended to the company to conduct a PESTLE analysis of the external factors that can actually cause the risks or issues. Not all organizations have the right infrastructure that can help in securing the projects (Binder, 2016). A risk management team must be working to identify with the risks and also take necessary strategies in eradicating the issues. In that respect, it can be stated that there are resources and infrastructure considerations.

Conclusion and recommendations

It can be easily concluded by stating that any organization, big or small, is bound to face obstacles and issues while doing any project. In relation to Apple, it can be stated that the company can take many strategies and the following recommendations can help in making the project successful.

  • It is recommended to use a risk register to identify and control the risks
  • It is also recommended to conduct a market research and identify with the demands and requirements of the people in relation to the actual need of the project.
  • The organization is recommended to hire new professionals who will be able to channel the finances and make the best use of the available cash.
  • The company is also recommended to take risk managing strategies and actions to evaluate the risks and also eradicate their chances of occurrence.

On a whole, this particular paper has been highly educational and enriching in developing a critical understanding on the ways through which projects can be managed. The risks, as observed in the research work, can be the biggest threats and they must be controlled and monitored for better project performances.

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Part B - Conduct a capital budgeting analysis for the Apple Corporation.

a. According to the sources above does Apple currently have equity capital on issue? Why do companies raise equity capital? What has happened to the Apple share price in 2019 and why has this happened?

Yes, apple has currently equity capital on issue. The company raises the equity capital in order to meet the funding requirement of the business. Due to the massive iPhone leak issue and the battery problem the share price of the company has been decreased, which caused the company lack of capital for making the developments in the business. However, for solving the issue, the company needs to raise the funds from sources that do not cause high liability to the company. Due to this issuing the equity capital is the best way to raise funds for the business.

The problem faced by Apple Inc in 2018 caused reduction in the share price of the company. The investors were not ready to make further investments in the shares of Apple Inc as the sales or price of iPhone was rapidly decreasing. The situation was not at all in favor of the company. However, in the beginning of 219, the scenario changed a bit. Though the sale of iPhone did not increase much, the company gained the trusts of the investors further. In 2019, the share price of the company started to increase. As a reason, it can be stated that the share price of the company increased or the company gained the trusts of the investors because of its sales in the other segments of products. The high brand value of the company helped in gaining the faith of the investors and increasing the price of the shares in the market.

b. Below are details about a project Apple is undertaking. Please answer questions i-vi with the aid of an excel spreadsheet.

i. What are the FCFs for this project?


Years


0

1

2

3

4

Net revenue

2.8

1.8

0.8

-0.2

-1.2

Less: Variable costs

0.56

0.36

0.16

-0.04

-0.24

Less: Research and Development cost

1

0

0

0

0

EBITDA

1.24

1.44

0.64

-0.16

-0.96

Less: D&A

0

0.25

0.25

0.25

0.25

EBIT

1.24

1.19

0.39

-0.41

-1.21

less: Tax

0.372

0.357

0.117

-0.123

-0.363

NOPAT

0.868

0.833

0.273

-0.287

-0.847

D&A

0

0.25

0.25

0.25

0.25

CFO

0.868

1.083

0.523

-0.037

-0.597

Cap Ex

-5

0

0

0

0

Working capital

0.03

0

0

0

0

Salvage value

2

0

0

0

0

FCF

-2.102

1.083

0.523

-0.037

-0.597

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ii. What is the NPV of this project?

Calculation for NPV




Initial investment

-5

Cash flow in year 1

1.083

Cash flow in year 2

0.523

Cash flow in year 3

-0.037

Cash flow in year 4

-0.597



Cost of capital

10%



NPV

-$3.65

iii. State whether Apple should invest in this project and explain why or why not?

Considering the above calculation, it can be stated that the Apple should not invest in this project as the NPV is negative. At the same time, in the sources, it has been identified that the sales of iPhone XR has not increased in 2019, which means the company has not gained the trusts of the customers till now. Therefore, making a large investment at this scenario will not be suitable.

iv. Is funding this project with ordinary shares the cheapest way to finance? Why or why not? Imagine Apple could refinance using only bonds. Would this affect its NPV? Why or why not?

It cannot be stated that funding through ordinary shares is the cheapest way to finance the project because there is the way to fund the project through bond. If the company uses bonds the NPV may raise. It may happen if the expected future value of the bond is high.

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