Study On The Financing Method Of The Iphone Finance Essay

Study On The Financing Method Of The Iphone Finance Essay

The purpose of this study is to analyse the cost involved, pricing policy and funding method in concern of the new radical smart phone, the iPhone 4. As requested, this study contains information compiled from the other sections. The information included in this study was obtained by most updated and appropriated of cost statements from the Apple ‘s direction boards.

2. Cost involved

Elementss of costs can be classified as direct cost or indirect cost.

The direct costs are the costs that can be traced in full to the merchandise which cost is being determined. The direct stuff costs are the costs of stuffs that are known to hold been used in bring forthing and selling iPhone 4 such as steel, A4 processor, led flash, etc. Direct labour costs are the specific costs of the work force used to bring forth iPhone 4. In this instance, the merchandise does non hold any direct labour costs because Apple outsources the fabrication works. For case Foxconn manufactures all parts of the new device. This cost alternatively has been charged in the direct stuffs costs already. Indirect cost or overhead cost is a cost that is incurred in the class of bring forthing merchandise but which can non be traced in full. For illustration rewards of supervisor, cleaning material…

Entire costs of this new undertaking has been estimated to be around $ 7 billion, which includes both the direct and indirect cost, the fixed cost and variable cost, and the sunk costs. Sunk costs are those cost which can non be recovered irrespective of the results of the undertaking. For illustration the cost of Research and Development or the cost of marketing run is done for cost.

3. Pricing policy

Four stages of iPhone life rhythm charge different monetary values.

Introductory stage is a high hazard stage, where iPhone 4 have merely been launched on to the market. The client base is mostly unusual to this new radical merchandise. The concern may necessitate to concentrate on advertisement and publicity to construct gross revenues. Heavy introductory monetary value price reductions may be necessary to carry clients to seek the merchandise. If the merchandise is extremely advanced or desirable in Apple ‘s instance, so the monetary value charged may be high to reflect the desirableness of the merchandise.

Growth stage: is a stage when demand for the phone rises, perchance due to the advanced qualities of the merchandise, market portion will turn and the merchandise becomes more profitable. Pricing will go more competitory if new rivals enter the market.

Maturity stage: the iPhone 4 will be good established in the market. However, clients will be extremely knowing about the merchandise and redesign, re-packaging and re-pricing of the merchandise may be necessary to keep the merchandise in the market topographic point. This will be peculiarly of import since rivals may vie to a great extent on a monetary value footing. Such as Google Android, HTC, Samsung appstore, etc.

Decline stage: at the terminal of iPhone 4 ‘s life, demand for it may fall dramatically as it is replaced by upgraded or improved merchandises. This is peculiarly noticeable in high-tech markets particularly in the smart phone market.

4. Financing method

Apple needs to happen capital by taking either debt funding or equity funding. However, the pick of debt or equity funding will impact Apple ‘s capital construction. Therefore, it ‘s of import to understand the advantages and disadvantages offered by both beginnings of capital.

The chief advantage of debt funding is the revenue enhancement benefits it provides. A per centum of the involvement payments a company makes are revenue enhancement deductible. A 2nd advantage of debt funding is that debt increases hard currency flow. Debt consequences in more hard currency flow to put in new undertakings and pay stockholders. The chief disadvantage of debt is the costs, both direct and indirect. Direct costs are involvement, possible bankruptcy costs, and bureau costs when a house is managed by others to cut down struggle between debt and equity holders. Indirect costs have no money value. These include loss of consumer assurance, and higher returns for stockholders as debt increases the hazard of default. The concluding disadvantage of debt funding is loss of flexibleness. For illustration, Apple may confront limitations on the type of undertakings it can set about. These restrictive understandings are meant to protect bondholders from the investing determinations forced on the house by equity holders.

The option to debt funding is equity funding or in other words investors purchase Apple ‘s stock. The advantage of equity funding is that the house does non hold to pay involvement or chief payments to equity holders. Disadvantages include the fact that equity holders to a great extent act upon direction determinations, dividends are non revenue enhancement deductible, and equity is considered a riskier method of funding.

5. Decisions and Recommendations

To sum up, the cost of the new iPhone 4 is rather high, about $ 7 billion. The pricing policies are extremely depended on the stages of a merchandise. At the beginning of merchandise life rhythm, Apple has a possible addition immense net income border by bear downing premium monetary values. In order to finance the new iPhone version, Apple needs to take both debt and equity funding methods. My recommendation is taking debt or publishing corporate bonds more than publishing portions. The ground is because the existent market status provide chance to borrow at low involvement rate, therefore the voucher payment will be lower. In add-on, the market portions monetary value is underpriced, therefore it is non recommended to deluging the stock exchange with new portions otherwise it would be a large loss for current equity holders. On the footing of the findings above, it would look that although the debt funding is more favourable, the equity funding can non be excluded as an alternate beginning of funding.