Financial Plan-Apple Inc

Financial Plan-Apple Inc

Business Description

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The business presented in this plan entails the production of a new innovative product by Apple Inc. The new product will fall into the apparel and technology industry. Apple Inc. will require funding to implement a plan for producing a new product. The new product will be a jacket called iWear that will contain numerous innovative features. The design and launch of this project will require financial resources to be acquired through the new product development planning. In total, the project will require funding of $2,000,000. Notably, this amount will be spent based on the following structure:

Project Funding

Particulars	Amount in dollars
Raw materials	900,000
Labour	650,000
Product testing	450,000

Apple Inc. has various funding options for the subject project. They include self-funding, debt, and equity funding. Self-funding relates to using one’s own resources to fund the project. For companies such as Apple Inc., self-funding entails using retained earnings to fund investment activities. Debt financing, on the other hand, refers to obtaining money through borrowing to fund investment activities. Borrowing can be made from lending institutions such as commercial banks, savings and loan associations, and credit unions. It has various risks, such as the company losing properties used as collateral in the case of loan default. Regarding the last option, equity financing entails offering new stock securities to the market for the public to purchase. When the securities are purchased, capital for funding intended projects is raised. The risk associated with this option entails the owner losing part of ownership to other people who may influence decisions required in the business.

Since the company has a substantial financial base, the self-funding option will be adopted. Notably, this funding approach will draw funds from the retained earnings from the previous fiscal period. The strong financial position of the company supports self-funding. As shown in the statement of financial position, the company’s net assets in the latest fiscal period were $50,672,000,000, while that of the net income was $99,803,000 (Yahoo Finance, 2022).

The company’s weighted cost of capital (WACC) will apply to the project’s funding. The weighted cost of capital refers to the rate at which the company is expected to, on average, holders of its equity and securities. Apple Inc.’s weighted cost of capital is 11.18% for the year ended in September 2022 (GuruFocus, 2022). Since a self-funding approach is taken, this amount is already included within the WACC figure as part of the total equity variable. Notably, the WACC as the minimum rate of return implies that if the firm needs new capital in the future, this will form the minimum return investors will require.

A 3-Year Period Profit-And-Loss Statement

	Apple, Inc. – Projected Income Statements
*All figures posted in thousands.	09/30/21	%	09/30/22	%	09/30/23	%	09/30/24
Total Revenue	365,817,000	5%	384,107,850	7%	410,995,400	9%	447,984,985
Cost of Revenue	212,981,000		223,630,050		239,284,154		260,819,727
Gross Profit	152,836,000	5%	160,477,800	7%	171,711,246	9%	187,165,258
Operating Expenses	43,887,000		46,081,350		49,307,045		53,744,679
Operating Income	108,949,000		114,396,450		122,404,202		133,420,580
Net Non-Operating Interest	198,000		207,900		222,453		242,474
Other Income Expenses	60,000		63,000		67,410		73,477
Pretax Income	109,207,000		114,667,350		122,694,065		133,736,530
Tax Provision	14,527,000		15,253,350		16,321,085		17,789,982
Net Income Common Stockholders	94,680,000	5%	99,414,000	7%	106,372,980	9%	115,946,548

Yahoo Finance (2022)

The above profit and loss statement presents results from the first three years of producing and selling the proposed iWear jackets. The statements indicate that the company’s revenue will increase by 5% in the second year of operation, 7% in the third year, and 9% in the fourth year of operation. Notably, these revenue growth percentages are based on specific assumptions. First, it is assumed that the product will receive a warm welcome to the market once marketing and promotional activities are undertaken to promote it. Second, it is assumed that market economic conditions will remain stable across the first four years of operation. Essentially, this means that the inflation rate will remain stable and relatively low alongside stable incomes for the demographics that represent the market. Third, it is assumed that the market acceptance of the new product will grow steadily during the fiscal periods, represented by 5%, 7%, and 9% revenue increase projections.

The projections made in the provided profit and loss statement do not touch on revenues alone. They touch on the gross profit margin and the net income for common shareholders. Notably, this means that the assumptions taken above still hold for the shareholders’ gross profit margin and net income. Overall, the performance of the new product regarding the generation of profitability is high.

Conclusion

As shown above, the financial plan relating to Apple Inc.’s proposed new project is viable. The plan relates to creating a new product called iWear, an innovative jacket that will incorporate aspects of technology and comfort. The project implementation will require significant funding, with a total of $2,000,000. However, Apple Inc. has a stable financial background, making it easier to undertake the project. Self-funding is the only approach that the company will consider to fund the project. The strong financial background of the company supports the selection of this funding approach. Self-funding is a cheap funding source and will not increase the company’s cost of capital. Therefore, the weighted cost of capital for the company will remain at 11.18% even after funding the project. When a three-year projected income statement is considered, the company will likely generate more profits from the intended project with a 5%, 7%, and 9% increase in revenues for three fiscal periods.

References

GuruFocus. (2020). Weighted Cost of Capital. https://www.gurufocus.com/term/wacc/AAPL/WACC-Percentage/Apple#:~:text=As%20of%20today%20(2022%2D11,cost%20of%20capital%20is%2010.89%25.

Yahoo Finance. (2022). Financial Statements. https://finance.yahoo.com/quote/AAPL/financials/.

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You, as the business manager, need to be able to determine larger sources of funding by creating a financial plan to help reduce duplication of resources, identify requirements and risks, and determine various financing options. Completing this planning is an important step for all businesses to take if they want to succeed. Larger companies may delegate this process to financial managers, financial analysts, or operations managers.

You decide to create a financial plan for your company to help distinguish between sources, requirements, and risks associated with various types of long- and short-term financing capital structures that your company can potentially use in the future.

Assessment Deliverable
Draft a 3- to 4-page financial plan for your company. This plan should include sections for a business case and profit-and-loss statements. Include the following items:

A business case that includes a description, type of business, and sources of funding. Note: Use your Wk 5 Assessment Prep: Business Case Research assignment and feedback. This is the write-up from the Wk 5 assignment.
A profit-and-loss statement for a 3-year period, along with a discussion as to your assumptions and growth expectations. Project revenue. Use the template provided. ONLY enter the % increases within the YELLOW boxes, as the rest of the figures will automatically calculate for you. ????
A conclusion that includes an explanation of what working through a financial plan can do for a larger company.

Cite references to support your assessment according to APA guidelines. References are required so that any potential plagiarism issues are mitigated. The reference for Yahoo! Finance is included on the Excel spreadsheet.