Business Scenario for Individual Report.

Business Scenario for
Individual Report

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Various short and long term sources of finance..........................................................................1
Evaluation of investment appraisal techniques with recommendations......................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Business scenario is the variation of elements which combine together to develop an
organisation (Isaac and O'Leary, 2013). The main aim of developing this report is to build an
understanding about the procedure of investment appraisal and analysis of the techniques by
which an investment can be appraised. In this report, a small scale organisation is being assessed
which is Zylla Limited. This organisation is operating in the business of ferries in which the
provide commute services of river crossing to various individuals and vehicles. In this report,
various short term and long term sources of finance are assessed for the purpose of fulfil the
finance requirements of the company. Later in this report, investment appraisal techniques are
evaluated for the purpose of ascertaining whether or not investment of the new ferry is viable.
MAIN BODY
Various short and long term sources of finance
The organisation which is considered in this report is Zylla Limited which is seeking
finance for their new investment in ferry which will provide them access to enhance their
productivity and fulfil ever increasing demand from the consumers. Investment in the new ferry
has levied both the short term and long term finance requirement for Zylla Limited. Short term
finance for the objective of fulfil working capital requirement and long term finance for
acquiring the new ferry. All these finance options are identified below:
Bank overdraft facility - This is a short term fund which an organisation can access from
their bank serve. This facility enables an organisation to withdraw an amount from their bank
account which exceeds their available balance (Cardarelli, Elekdag and Lall, 2011). Against this
facility, bank charges a fee which does not levy impactful stress on the organisation. This fund
can be used by the company to fulfil their working capital requirement and by this, they can
effective maintain their newly invested ferry.
Trade payables – This is another short term finance source which enable to organisation to
trade with their suppliers without paying them money. The realisable period of this fund is
maximum one year depending upon the credit policy of the supplier. By using this source, Zylla
can procure raw materials for their operations on credit and can pay them back after few months.
This fund will fulfil their working capital requirements.
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Promissory note – This is also a short term source of finance as the validity of such note is
maximum one year. Organisations like Zylla ltd. can issue a promissory note to their trade
partners or general individuals against which they can gain a sum of amount which has to be paid
at due date along with promised interest or commission.
Accumulated earnings – This is a long term source of finance which allows organisation to
gather funds from their annual profits for the purpose of future contingent situations. This fund
can be used by Zylla limited to purchase a new ferry for which they do not have pay interest to
any external parties. This source of finance is only beneficial if the company has appropriate
funds in their accumulated earnings fund.
Bank loan – This is both a short and long term finance source which allow organisations to
procure funds for commercial bank loan against which an interest has to be paid by them (Ball,
2014). In this case, Zylla can procure fund from bank to buy a new ferry and to also fund their
working capital requirements. The drawback of this source of finance is that Zylla limited has to
pay an annual rate of interest against the loan amount.
After analysing various sources of fund, it has been analysed that bank loan is the most
appropriate and reliable source of fund for Zylla limited to fulfil their both short and long term
finance requirements.
Evaluation of investment appraisal techniques with recommendations
Checking the viability of an investment is the activity of investment appraisal. There are
various techniques by which Zylla Limited can analyse viability of their acquisition of new ferry
which includes NPV and Payback period (Abdel-Kader, Dugdale and Taylor, 2018). Using all
these three techniques, profitability and pay back period of the new ferry is computed below
which has the initial investment of 150000 pounds.
Year Net cash flows PV factor @ 10% Discounted cash flow
1 55230 0.971 53628.33
2 70045 0.943 66052.435
3 88375 0.915 80863.125
4 79870 0.888 70924.56
5 57555 0.863 49669.965
5 45000 0.863 38835
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Total discounted cash flow 359973.415
Less: initial investment 150000
NPV 209973.415
Year Net cash flow Cash Flow
1 55230 55230
2 70045 125275
3 88375 213650
4 79870 293520
5 57555 351075
5 45000 396075
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-0.79691999
Payback period 2.203080005
From the above numerical analysis, it has been observed that the new ferry will result in
profitability of 209973 pounds and the initial investment of the ferry will be payback in the
period of just 2 years and 2 months. As NPV technique is capable to calculate the profitability, it
is considered as most suitable technique. Considering NPV as the base, it has been concluded
and recommended that Zylla limited should invest in new ferry as they will earn a profit of
209973 pounds from the investment of 150000 pounds.
CONCLUSION
From the above report, it has been concluded that every organisation requires various
sources of finance when they intend to acquire new assets. It is important to analyse which
source of finance is most appropriate by considering the financial stability and external growth
prospects. In the above report, it has been found that bank loan is the most appropriate source of
finance as the company will easily pay their loan amount back along with interest as they are in
growing phase. Apart from this, it has also been concluded that NPV is the most effective
technique to appraise an investment.
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REFERENCES
Books and Journals
Abdel-Kader, M. G., Dugdale, D. and Taylor, P., 2018. Investment decisions in advanced
manufacturing technology: A fuzzy set theory approach. Routledge.
Ball, L. M., 2014. Long-term damage from the Great Recession in OECD countries (No.
w20185). National Bureau of Economic Research.
Cardarelli, R., Elekdag, S. and Lall, S., 2011. Financial stress and economic contractions. Journal
of Financial Stability. 7(2). pp.78-97.
Isaac, D. and O'Leary, J., 2013. Property valuation techniques. Macmillan International Higher
Education.
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