Short term and long term finance sources for acquisition of funds of ferry and working capital

This report discusses the short term and long term finance sources for acquiring funds for a ferry and meeting the working capital needs. It also evaluates different investment appraisal techniques to determine the viability of the new ferry project.

Business Scenario for
Individual Report

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Short term addition to long term finance sources for acquisition of funds of ferry along with
for needs of organisational working capital.................................................................................1
Evaluation of diverse investment appraisal techniques together with recommendation of
acquisition viability as well as operations of new ferry on the basis of suitable investment
appraisal technique.......................................................................................................................2
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
In present business aspect, all business concerns assures availability of required financial
resources in proper manner (Gallego-Álvarez and Ortas, 2017). Companies acquire funds from
various sources and utilise them properly on various mechanisms. Zylla Limited is considered
for the report which operates huge ferries that offer river crossing services to wide population,
merchandise and vehicles across river. The activities that are performed by the entities are good
and it has huge expansion prospects and for this, finance officer has decided to purchase new
ferry so to cater increased demand and generating huge revenues. The report covers distinct
types of short as well as long term sources of finance. In addition, it also covers few of
investment appraisal techniques for analysing suitability of new ferry.
MAIN BODY
Short term addition to long term finance sources for acquisition of funds of ferry along with for
needs of organisational working capital
In existing scenario of business, organisations have huge sources to acquire funds as per
the needs are requirements of working capital (Mitchell, 2017). A continuous working capital
flow is one of intrinsic aspect and lifeline for successful entity. In context to Zylla Limited, its
management team has made purchase decision for new ferry so to satisfy the increasing demand
for organisational services. For such purpose, the team needs to generate finance for the
acquisition and fulfilling working capital needs (Sourcing of financing, 2020). Few of the
sources of funds that respective firm can use are discussed underneath:
Short term funding sources: Potential funding sources that requires varying level of
interest expense, personal guarantee along with collaterals are short term sources of funds. These
sources provides funds for period that do not exceed one year. Some of short term sources are
underneath:
Commercial paper: It is an effective financing form that includes promissory notes that
are generally unsecured as well as sold in money market. Zylla limited managers can contact to
corporations as well as large banking institutions for issuing commercial paper so that they can
get funds to fulfil daily expenses.
Overdraft: It is arrangement of funds from financial institutions or banks which allows
business to overdrew money from current deposit account at certain limit. When Zylla Limited
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will make attempts for withdrawing money from financial institutions then they can generate
financial resources so to buy the ferry addition to fulfil all working capital requirements.
Cash credit: It is said to the arrangement which banks makes for their clients so that they
can withdraw money exceeding the limit of the account. It is sanctioned basically for period of
one year (Railsback and Grimm, 2019). The relevance with Zylla limited, finance manager can
approach to bank for signing agreement for cash credit that will help in generating cash for
meeting working capital essentials.
Long term funding sources: it is mentioned to financing form that comprises long term
debts as well as financial obligations that last for more than an accounting year. The funds which
are generated through sources for long years are long term financing. Few are mentioned below:
Long term bank loan: Within this financing source, organisations approaches to
financial institutions so to get bank loan for long terms. Through this option, Zylla Limited
managers may opts for long term bank loan which will assist them, to meet essential working
capital requirements for upcoming years.
Retain Profits: It is described to the accumulated revenues which is retained by business
associations at specific time, that is end of reporting period. The financial officer of respective
firm can use all retained profits for acquiring ferry addition to meet capital of working.
Evaluation of diverse investment appraisal techniques together with recommendation of
acquisition viability as well as operations of new ferry on the basis of suitable investment
appraisal technique.
Investment appraisal techniques are said to the tools which helps in identification of
investment attractiveness (Seiler-Hausmann, Liedtke and von Weizsäcker, 2017). The objective
of using investment appraisal technique is related to assessment of project viability and
ascertaining the values that can be generated by them. As managers of Zylla Limited has made
decision regarding purchasing new ferry, it is important for them to assess viability and analyse
whether investment should be made or not in the project through using different techniques of
investment appraisals. Some of them are as described with calculations:
Pay back period: It is considered as effective investment appraisal method that generally
shows time taken by project to create sufficient cash flows so that initial project costs are
covered. With this technique, durability of proposed project is analysed. By using this technique,
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finance officer of Zylla Limited can analyse that the new ferry will provide revenues or not. Pay
back period for new ferry is as calculated:
As per the above calculation, it is analysed that pay back period is 4.28 years that states
that initial investment related to 150000 will be recovered in 4.28 years by Zylla Limited. Hence,
the decision for purchasing the ferry will benefits the entity.
Net present value: The another technique that is total of discounted inflows and outflows
of future cash associated with project (Wexler, Shaffer and Cotgreave, 2017). It will be used by
respective firm for determining current values of cash flows that can be generated in upcoming
timings that will help in taking investment related determinations. At Zylla limited, the technique
can be opt to ascertain current values of inflows of cash which will be generated in upcoming
years. The total cash inflow is divided by new project cost provides net present value.
ARR: The technique that is used for calculating the value of set of numbers. To calculate
average return rate, sum of returns are divided by number of returns. Zylla Limited could use the
investment appraisal technique for quick calculations for profitability of investment. Calculation
of ARR for the proposed ferry project are as follows:
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According to above calculations, ascertained NPV and ARR are high then the initial
investment for new ferry project. Hence, it is recommended to finance officer of Zylla Limited
that they can make investment in the proposed project.
CONCLUSION
The above report concludes that finance acquisition is essential task to entities as it is
required for properly completing diverse operations on time. Few financing sources are long
term sourcing and short term sourcing wherein long term sourcing includes long term bank loan,
Retain Profits and short term sourcing comprises of Commercial paper, Overdraft and Cash
credit. Types of techniques for investment appraisals are pay back period, net present value
addition to IRR that determines attractiveness of projects.
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REFERENCES
Books and Journals:
Gallego-Álvarez, I. and Ortas, E., 2017. Corporate environmental sustainability reporting in the
context of national cultures: A quantile regression approach. International Business
Review. 26(2). pp.337-353.
Mitchell, L., 2017. Safer surgery: analysing behaviour in the operating theatre. CRC Press.
Railsback, S. F. and Grimm, V., 2019. Agent-based and individual-based modeling: a practical
introduction. Princeton university press.
Seiler-Hausmann, J. D., Liedtke, C. and von Weizsäcker, E.U. Eds., 2017. Eco-efficiency and
beyond: Towards the sustainable enterprise. Routledge.
Wexler, S., Shaffer, J. and Cotgreave, A., 2017. The big book of dashboards: visualizing your
data using real-world business scenarios. John Wiley & Sons.
Online:
Sources of financing. 2020. [Online]. Available through:
<https://www.invensis.net/blog/finance-and-accounting/sources-of-short-term-and-
long-term-financing-for-working-capital/>
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