Capital Budgeting

Apple Inc. happens to be one of the largest companies not only in the U.S., but also across the world. To a large extent, its capital budgeting can be affected by a number of factors. In this context, capital budgeting has been used in the context of the evaluation and selection of long-term investments that contribute to the firms goal of maximizing owners wealth (XXXX, p. 432). To begin with, when it comes exchange rate risk, it would be prudent to note that the company is a multinational that operates in many other nations. Thus, fluctuations in the value of the dollar could affect the returns it rakes in from foreign projects/investments. Similarly, political instability and the fact that this could cause volatility on the economic front could have an effect on the decision to allocate resources to certain regions/countries. Third, in as far as transfer pricing is concerned, it should be noted that being a commercial firm, the companys overall objective remains raking in a reasonable return for its shareholders. However, even in so doing, considerations revolving around transfer pricing are crucial owing to the need to ensure that existing capacity is utilized in the best manner possible. Lastly, regarding strategic risk, the identification of investment cash inflows and outflows could be impacted upon by technology changes as well as competitive pressure owing to the fact that the company operates in a highly innovative and competitive marketplace. The greatest threat to Apple, in my opinion, is currency risk owing to the fact that the company operates in multiple locations across the world. This effectively means that fluctuations on this front could result in lower relative gains as a consequence of higher relative costs. In seeking to reign in this particular risk, Apple Inc. could ensure that revenues and expenses are kept in same currency (i.e. by contracting or invoicing in U.S. dollars).

References

XXXX (). Course Book