Ferry Business Investment Analysis

This assignment examines the financial viability of expanding a ferry business. It utilizes methods like Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period to evaluate the project's profitability. The analysis also considers working capital management and various financing options available to the company. Students are expected to demonstrate their understanding of investment appraisal techniques and apply them to a real-world business scenario.

BUSINESS SCENARIO FOR
INDIVIDUAL REPORT

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Source of finance................................................................................................................1
2. An evaluation of various investment appraisal techniques................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Business decision are mainly based upon effective management and analytical skills. There
is a business case scenario provided regarding expending the business scale form its current
level. Zylla Limited operates various ferries that supplies river crossing services for people,
vehicles and goods across a river. Business is growing very well and considering the growth of
the business managers of the company are seeking to expand the ferries to cater for the increased
demand (Mayer, Breun and Schultmann, 2017). Management has made a decision to buy a few
ferry to meet its future requirements organisation is required to generate funds for acquiring the
ferries and working capital requirements of the expansion. This reason also requires to manage
the funds. Viability of the project is analysed by applying investment appraisal techniques which
are defined in this report.
MAIN BODY
1. Source of finance
An organisation can arrange finance from various sources such as : short trem and long
term source of finance. Zylla can also arrange funds from thses two sources so that it can collect
funds for the acquisition of the ferry and for the company's working capital needs.
Short term source of finance:
Bank credit : To arrange short trem finance bank credit is a suitable source for the
company and Zylla can borrow funds from the commercial banks. So that it can arrange funds
for the acquisition of the ferry and for the company's working capital needs. When bank credit is
granted than orgnisation gets a rigth to draw the amount of credit at on time or in stallments as
and when required. It can be gramted in the form of loans, overdraft, discounted bill etc. As a
result coprporation can expand its business because it will not worry about the finance.
Customer's advance : It is very popular source of short term finance for orgasnisastions
and in it businessmen insist their consumers to make some payment advance. So Zylla can
arrange fund by taking advance from those consumers who are provide regular business to the
corporation. So it can arrange funds for the acquisition of the ferry and for the company's
working capital needs.
Long term source of finance:
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Equity shares : It is a long term source of finance for the organisation and Zylla can
arrange funds by issuing the shares but it has be registeded as public company for it. As a result
it can arrange huge amount of funds from shareholders so that corporation can arrange funds for
the acquisition of the ferry and for the company's working capital needs (Meuleman and De
Maeseneire, 2012).
Loans from public financial institutions : To arrange funds from long term sources,
Zylls can take loans public financial institutions so that it can increase its transportatuion sources
as a result its profis can be maximize and problem of working capital can be reduce.
2. An evaluation of various investment appraisal techniques
Investment appraisal techniques:
Investment or capital appraisal techniques are also known as capital budgeting that is
consider to be a planning method which help the manager of companies to determine the best
investment that give best result for short and long term. In general term, capital investment
appraisal is the budgeting of main capital and investment to an organisation expenditure. In Zylla
Limited manager uses different method of measure the capital investment appraisal of a business
project. These are discussed below:
Net present value methods:
This method helps to collected and calculated the information about the overall cash
inflows weather excess or short within company during a time period. Under this method the net
cash flows are discounted from the investment by the minimum rate of return and then the initial
investment is deducted to obtain the yield from the actual money invested.
Payback period method:
This method help to recognise the overall recovery of actual capital invested in a project
from the following year. It actually help the finance manager of Zylla limited to ascertain that
which project will give result in how much time so that proper decision could be make in order
to achieve the amount invested. For example there are two project form which manager have to
make choice that is best for company. Time taken to complete one project take 2 year and other
take 3 year to recover the actual investment so manager must choose the project that shortest
payback.
IRR (Internal rate of return):
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This method shows the percentage discount rate that is used in capital investment
appraisals that bring the actual cost of project and its future cash inflows. There is an investment
plan is proposed to mangers of the organisation in terms as ferries are normally ferries operated
profitably for five years after it decommissioned. It us mainly sold by sold for approximately
10% of its cost. The initial investment is required of £150000000. The discount factors for the
cost of the capital is provided in the information are the related to the relevant years.
Cash out flow
Discount
factor £000
Cost of ferry -150000 1 -150,000
Year 1 56880 0.971 55,230
Year 2 74279 0.943 70,045
Year 3 96585 0.915 88,375
Year 4 89944 0.888 79,870
Year 5 66692 0.863 57,555
Sale of
decommissioned ferry
in year 5 52144
0.863 45,000
NPV 246,075.00
IRR 38.16%
The above results present the positive results in terms of expanding the business at next
level. Net present value and IRR method is used to analyses the feasibility of the project. The
Net present shows positive return of £246075. It is evaluated that the investment project will
provide internal rate of return with 38.16%.
CONCLUSION
In the conclusion it can be said that adequate working capital plays an important role for
smooth functioning of organisation. There are various sources for finance such as long and short
term which can be used by the company to fund their ferry and fulfil working capital needs. The
company can use different investment appraisal tools such as payback period and NPV which
can assist organisation to find out the viability of investment made by the company. These
techniques will help the company to take the financial decision in effective and adequate manner
so that goals can be achieved.
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REFERENCES
Books & Journals:
Mayer, C., Breun, P. and Schultmann, F., 2017. Considering risks in early stage investment
planning for emission abatement technologies in large combustion plants. Journal of
cleaner production. 142. pp.133-144.
Meuleman, M. and De Maeseneire, W., 2012. Do R&D subsidies affect SMEs’ access to
external financing?. Research Policy. 41(3). pp.580-591.
Rupert Booth, M. A., 2012. Risk planning for interdependencies: from theory to
practice. Proceedings of the Institution of Civil Engineers. 165(2). p.85.
Vermoesen, V., Deloof, M. and Laveren, E., 2013. Long-term debt maturity and financing
constraints of SMEs during the global financial crisis. Small Business Economics. 41(2).
pp.433-448.
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