Short term & Long term sources of fund to the acquisition of Ferry & for organisation working capital needs

This report discusses the short term and long term sources of fund for the acquisition of ferry and organization's working capital needs. It covers options such as bank credit, commercial paper, retained earnings, and loans from financial institutions. It also explores different investment appraisal techniques like ARR, payback period, NPV, and IRR to evaluate the viability of the acquisition and operation.

Business Scenario for
Individual Report
(TASK 4)

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................4
1.Short term & Long term sources of fund to the acquisition of Ferry & for organisation
working capital needs..................................................................................................................4
2. Different investment appraisal techniques & recommending the viability of the acquisition
& operation..................................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
It is essential for a business association to ensure that financial resources is available for
the smooth functioning of activities of an organization. Finance plays a vital role as compare to
other resources (Alkaraan, 2015). The companies collect funds from various sources of funding
in order to enhance business activities and gain higher profits. In the present report, Zylla is
chosen as a base company. The company offers number of ferries that is it offers river crossing
services. In the present time, the higher authorities of company to want to expand its operations.
For this, it is plan to acquire new ferries. The file covers various sources of funding along with
investment appraisal techniques.
MAIN BODY
1.Short term & Long term sources of fund to the acquisition of Ferry & for organisation working
capital needs.
In the present business situations, there are different options for companies to get funds
funds for their business activities and to expand their operations. It is totally rely on the form of
organisational activities that by which source company get finance (Ware, 2017). In addition to
this, there are mainly two forms of sources of finds which is mentioned below with relation to
company:
Short Term sources: In these type of source, company get finance for short time frame
or for a year only. The senior management of Zylla limited get finance from short term sources
which is discuss below:
 Bank Credit: Most of the banks provide finance to business associations within the short
span of time that is considered as credit given by bank. Bank give credits in different
forms which are as follows:
a) Loan: The loan is sanctioned by banks to business entities in returns of security or assets.
With this, the bank charge some interest amount which is added with the principal amount and
paid by the companies (Corsatea, Giaccaria and Arántegui, 2014). Bank loan is secured as well
as convenient source to take funds at lower rate of interest. With reference to Zylla, the company
can take loans from banks and fulfil their financial needs as well as working capital requirement.

b) Overdraft: This option of short term sources of finance provides funds to the organisation
after their bank balance get clear. This option is beneficial for an entity as their day to day
functions is carried out smoothly and did not affect adversely on its performance. Zylla limited
should adopt this form of funds in order to payout money for day to day operations.
 Commercial paper: Herein, financial institutions provide funds to companies for the
short period of time. In this, the financial institutions provide finance according to the
market reputation and CIBIL score of company (GAUDECKER, 2015). In context to
Zylla limited, the higher authorities can acquire this option of funds which assist them to
smoothly perform out their activities and functions appropriately.
Long Term sources: Herein, business entities get funds for longer time period that is for greater
than a year. This option of taking loans is wholly different from taking funds from short term
sources. An organisation adopts the option of long term finance if it wants to perform out its
operations on large scale. In relation to Zylla limited, the managers of the company fulfil their
working capital and financial needs by taking finds from long term sources. These sources are
mentioned below:
 Retained Earnings: it is basically when companies retain a portion of profit for future
expansion & for diversification programme as a free reserves is known as retained
earnings. It is mainly a part of equity shareholders and raises the net worth of a company.
The managers of Zylla limited can get new ferry if it does not distribute its profit to the
shareholders and kept a part of profit with it (Kealy, 2014).
 Loan from Financial institutions: This institutions grants loan to both public as well as
private companies for long time period. Financial institutions checks economical.
Technical, financial feasibility & viability of companies to whom they provided the loan.
In relation to Zylla limited, the top level management of company can acquire this source
in order to get new ferry and to enhance its business operations.
2. Different investment appraisal techniques & recommending the viability of the acquisition &
operation.
There are different investment techniques which assist companies to identify various
investment proposals which is discussed below:
 ARR: Accounting rate of return technique is adopted by companies to evaluate the rate
of profit which is generated through investments. The formula of ARR is:

ARR = (Average annual profit after depreciation / Investment) * 100
 Payback Period: This technique is adopted by companies to compute out the time period
required to recover their initial investment. The formula to evaluate time period is:
Payback period = Initial investment / cash flow.
 NPV: This investment technique evaluates out the present value of specific project of an
organisation (Pringles, Olsina and Garcés, 2015). The formula of calculating this value
is:
Net present value = Discounted cash flow – Initial investment
 IRR: This method is basically used by companies to identify whether the investment
done by them is beneficial for them or not.
Valuation of viability of ferry:
Initial investment = 150000
Year Cash flow
PV factor @
10 %
Discounted
cash flow
1 55230 0.909 50204.07
2 70045 0.826 57857.17
3 88375 0.751 66369.625
4 79870 0.689 55030.43
5 57555 0.621 35741.655
265202.95
NPV = 265203-150000
= 115203
Analysis: From the above table, it has been identified that it is beneficial for Zylla to acquire
new ferry for the enhancement of its operations (Qun, Yongle and Siqi, 2015).
CONCLUSION
From the above study it has been concluded that finance plays an vital role in the growth
of an organisation. Business activities can perform better if company has strong finance level and
its working capital ratio is high. Nowadays, companies have more options to get funds at lower
interest rates such as banks loans, commercial papers, loan from financial institutions and many
more. By the assistance of these methods, a company can enhance its business operation and

gains high profit. IRR, NPV and payback period are some of the investment appraisal techniques
which higher authorities can acquire to identify best investment proposal for the organisation.

REFERENCES
Books&Journal
Alkaraan, F., 2015. Strategic investment decision-making perspectives. Advances in mergers and
acquisitions. 14. pp.53-66.
Corsatea, T. D., Giaccaria, S. and Arántegui, R. L., 2014. The role of sources of finance on the
development of wind technology. Renewable energy. 66. pp.140-149.
GAUDECKER, H. M. V., 2015. How does household portfolio diversification vary with
financial literacy and financial advice?. The Journal of Finance. 70(2). pp.489-507.
Kealy, T., 2014. Financial appraisal of a small scale wind turbine with a case study in
Ireland. Journal of Energy and Power Engineering, 8(4).
Pringles, R., Olsina, F. and Garcés, F., 2015. Real option valuation of power transmission
investments by stochastic simulation. Energy Economics. 47. pp.215-226.
Qun, W., Yongle, L. and Siqi, Y., 2015. The incentives of China's urban land finance. Land Use
Policy. 42. pp.432-442.
Ware, A., 2017. Funding democratization. Routledge.