Viability of Acquiring New Ferry for Business Expansion

This report discusses the viability of acquiring a new ferry for the business expansion of Zylla Limited. It also explores the sources of finance available for the expansion.

BUSINESS SCENARIO FOR
INDIVIDUAL REPORT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
REPORT .........................................................................................................................................1
CONCLUSION'...............................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Every individual carried the business with the motive of earning profit. Business cannot
run effectively without the availability of adequate funds. Every business whether small or big
requires funds for running its business. Today there are number of sources available through
which funds can be raised by the business. They are debt, equity bank borrowing and others. It is
essential for the enterprise to check the viability of projects before the funds are invested. Present
report is about the expansion plan of Zylla limited. It is planning to expand its business and is in
requirements of funds for the acquisition of ferry. Present report will provide about the viability
of acquiring new ferry and the sources of funds that are available for expansion.
REPORT
To,
Board of Directors
Zylla limited is performing good in the market has planned for expanding its business. It
is planning to acquire new ferry to cater for the increasing demand. Company is having enough
funds both for the acquisition of ferry and to meet the requirements of working capital in
expansion. The viability of acquiring ferry is checked by the technique of capital budgeting.
Net Present Value
It is a technique used under capital budgeting to check the viability of project. In this
method the future cash flows are discounted for knowing the present value. These cash flows are
discounted using a discounting rate (VanRaden, Cole and Gaddis, 2018). If the present value of
the project cash flows is positive than the project is considered to be profitable. It can be
assumed that project will generate adequate returns. This method considers the concept of time
value of money which is ignored by other techniques. It is and easy and simple method for
knowing the viability of investment. The drawback of this technique include it is difficult to
determine the discounting rate (Leon, 2018). The cash flows are estimated that may make the
decisions to be considered again. Using the method to check the investment proposal.
Net present value
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Initial investment = 150000
Net Cash flow PV factor @ 3% Discounted cash flow
55230 0.971 53628.33
70045 0.943 66052.435
88375 0.915 80863.125
79870 0.888 70924.56
57555 0.863 49669.965
90000 0.863 77670
Total 398808.415
NPV= Discounted cash flow – initial investment
=(398808.415 – 150000)
248808.42
The above analysis shows that Zylla limited should purchase the ferry for its business
expansion. The project is viable and should be adopted by the company. Cost of ferry is
£150000 and the present value of future cash flows generated are £ 398808.415. On subtracting
the initial investment from the discounted flows it could be seen that the outcome is positive
(Yan, 2018). This shows that the ferry should be purchased by company as it will help the
company in earning adequate returns to cover its initial investment and adequate funds for
running the business successfully.
Short term and Long term sources of finance
There are sources of finance available to the business both for meeting short term purposes and
long term objectives.
Long term sources of finance
Long term sources of finance are
Equity Capital
Equity capital is a interest free perpetual capital of company which could be raised by
private or public routes. Company can raise funds from the public by offering its equity shares in
market. In equity finance ownership is shared between the shareholders where the controlling
interests remains with the largest equity holder (Ali and Khalid, 2019). Company is required to
pay dividends over the capital invested by company.
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Preference Capital
It is similar to equity capital except certain rights. Preference shareholders are require to
be paid fixed amount of dividends every year like debt. They are given preference over equity
holders on liquidation.
Debentures
Debenture is an another source of finance helping organisations to raise funds for
meeting their expansion plans and capital requirements. Debentures is debt borrowed from
public by issuing debenture certificates. They can be placed via both public as well as private
placements. Companies are required to pay fixed amount of interest over the coupon rate of
debentures issued to the investors. They are redeemed after specified time period.
Term Loans
Terms loans are raised mostly from the banks and financial institution by the
corporations. They are required to pay the fixed amount of interest over the borrowed funds. The
funds are raised when the bank is satisfied with the financial performance of the company. These
are flexible sources of finance for meeting the long term requirements of company
(Amornkitvikai and Harvie, 2018). Term loans are processed faster in comparison to other
sources of finance.
Short Term sources of finance.
There are various sources for short term finance like;
Bank loans
Companies can avail loans from bank on short term basis. Banks provide loans for less
than 12 months. Fixed rate of interest is required to be paid to the banks for the loans raised.
These loans are easy to get and are more flexible than other sources of finance.
Personal Funds
Business owners can borrow money from family or friends on short term basis for
meeting term obligations and working capital requirements. They can be borrowed either at fixed
interest or at mutual relationship (Sridhar, 2017). These are sometimes required to be paid on
demand.
Overdraft
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Banks provide the overdraft facility to its premium customers where the banks makes
payment on behalf of its customers if they go out of cash for certain time limit. Interest is
charged after the specified time limit by bank.
CONCLUSION'
The above report is concluded by suggesting the Zylla limited that its expansion plan by
purchase of new ferry is viable and should be adopted. The NPV of the project is positive that
means project will generate adequate returns. For meeting its long term and short term
requirements there are various sources of finance like equity, debentures, loans, bank borrowing
and many more. These sources of finance can be used for meeting the working capital
requirements of company.
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REFERENCES
Books and Journals
VanRaden, P.M., Cole, J.B. and Gaddis, K.P., 2018. Net merit as a measure of lifetime profit:
2014 revision. Animal Improvement Programs Laboratory, ARS-USDA, Beltsville, MD.
Leon, D.D., 2018. The Analysis of the Interdependence Between Turnover and Net Profit in it
Companies in Romania. SEA–Practical Application of Science.6(16). pp.69-74.
Yan, X.Y., 2018, May. Research on the Difference of the After-tax Net Profit of Listed
Companies' Financial Auditing. In 2018 International Conference on Advances in Social
Sciences and Sustainable Development (ASSSD 2018). Atlantis Press.
Ali, K. and Khalid, M., 2019. Sources to Finance Fiscal Deficit and Their Impact on Inflation: A
Case Study of Pakistan. Pakistan Development Review. 58(1).pp.27-43.
Amornkitvikai, Y. and Harvie, C., 2018. Sources of finance and export performance: evidence
from Thai manufacturing SMEs. The Singapore Economic Review.63(01).pp.83-109.
Sridhar, M.S., 2017. Unit-10 Sources of Finance and Resource Mobilisation. IGNOU.
Online
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[Online]. Available through : <>.
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