Week 6 / FIN571 / Apple Inc
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Week5_Applefunding_YG.docx1
Apple Financial Plan
Yvette Garcia
Prof. Tucker
April 28, 2023
The need for company finance
Apple needs funding for expansion. Apple needs new goods and services projects that require massive cash to create this expansion. Second, finance is essential for cash flow and fulfilling business expenses. These may include supplier costs (Goyal & Kumar, 2021). Funding is essential since it sustains the company. Seed money ensures corporate stability.
Sources of funds
Apple Inc. has several funders. Product and service sales will fund the company. Profits come from selling its leading cell phones and other mobile accessories. Streaming services, among others, fund the company.
Funding requirements
Self-funding
Most firms charge more than they cost to make a profit. Any business should use this as its primary source of revenue.
Borrowing requirements
Loan expense. Interest's most significant expense. Before borrowing, the business must calculate the monthly interest (Gregory, 2020).
Security availability. Most lenders require collateral for loans. Fixed business assets are securities.
Equity financing needs
Voting Control. An organization that values control will not float a substantial number of shares to the public to guarantee an owner at least 50% control.
EPS dilution. New share issues may lower current shareholders' share value. Significant share issues diminish current shareholders' earnings per share when predicted revenues are lower than actual revenues.
Venture capital requirements
Big market. Venture capitalists only fund businesses with a substantial market. Large markets offer excellent earning potential.
Five-year exit. Profit-driven venture capitalists. They demand fast returns.
Funding risks
Self-funding risks
Asset risk. This method exposes entrepreneurs' assets to company litigation. A court can seize company debtors' personal property (Vernimmen et al., 2022).
Scarce resources. Few resources support business growth. Thus, the business may be small.
Debt-related risks
Over-Leveraging. Borrowing more than one can afford is a major debt finance issue. Profits should cover future interest payments.
Collateral recovery. Financial institutions may lose guarantee assets when a firm fails to pay interest and principal.
Equity financing risks
Control loss. Equity shareholders want to vote. Thus, entrepreneurs must relinquish some control, especially over the business's most crucial decisions.
Dividend loss. Annual dividends are paid to investors.
Non-tax shields. Interest payments are tax-deductible, but dividends are not, raising equity financing costs.
Venture capital risks.
Business ownership loss. Venture capitalists invest in exchange for a piece of the company, limiting an entrepreneur's ability to float shares.
Exit failure. Venture-backed companies rarely exit effectively. Managers determine exit success. The correct exit plan also depends on external factors like the business environment.
The best source of funds
Venture investors and loans will fund the company best. Venture capitalists will help launch the company. Loans and venture capitalists will help meet short-term and long-term financial needs.
Financing Costs
Self-funding costs nothing upfront. It earns no interest because the investor owes it. The enterprise's loss damages investors long-term.
Equity financing sells firm shares to investors. Recognizing that the company seeks 50% external funding. The corporation will sell 50% equity. Equity costs 50% of profits as dividends to owners.
Venture capital. Venture capitalists charge 20% annual interest. They also get corporate equity. Venture capitalists charge 20% interest and 10% dividend shares, as venture capitalists are paid when the company is profitable, and short-term costs are low.
Debt financing keeps expenses consistent throughout time (Li et al., 2023). Debt financing is charged on a reduced balance, the short-term cost is high, and the long-term cost is low.
Excel will show financial plan estimations.
References:
Gregory, J. (2020). The xVA Challenge: Counterparty Risk, Funding, Collateral, Capital, and Initial Margin. John Wiley & Sons.
Goyal, K., & Kumar, S. (2021). Financial literacy: A systematic review and bibliometric analysis. International Journal of Consumer Studies, 45(1), 80-105.
Li, L., Loutskina, E., & Strahan, P. E. (2023). Deposit market power, funding stability, and long-term credit. Journal of Monetary Economics.
Vernimmen, P., Quiry, P., & Le Fur, Y. (2022). Corporate finance: theory and practice. John Wiley & Sons.
