Short and Long Term Source of Finance for Zylla Limited

This report discusses the short and long term sources of finance that Zylla Limited can use to fund its ferry and working capital. It also evaluates various investment appraisal techniques and recommends the use of net present value.

Business scenario for individual report
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Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION ...............................................................................................................................3
REFERENCES................................................................................................................................4
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INTRODUCTION
Zylla limited is a company that offers various types of ferries services to people in order to cross
the river. Also, vehicle and goods can be crossed across river as well. These all services are
offered via ferries. There has been high rise in demand by people. In this report it will be
described about how zylla can fulfill the its short and long term source of finance to fund ferry
and working capital. Besides that, it will be explained about various investment appraisal
technique that is available and which one will be suitable for operation of new ferry (Agarwal,
2020)
MAIN BODY
Every business require funds in ordr to fulfill its needs. Also, funds are necessary to maintain
working capital as well. They must be borrowed or acquire for both short and long term period.
In similar way, zylla management has decided to expand operations to high demand. For this
they have taken decision of buying a new ferry. Moreover, they require funds to meet working
capital as well for short and long term period. Without managing working capital it is difficult
for them to operate and survive for long time.
Short and long term source of finance to fund ferry and working capital
It has been analysed that there are different sources of finance available for business from
where they can acquire funds. The selection of soirce depends on business requirement and for
what purpose capital is needed. Short term fund is required for 1-2 years whereas long term is
for more than 5 years. Thus, there are various sources which is as below (Fan, Gua Zhao,
2020)
Short term source-
Overdraft agreement- the company can make an overdraft with Bank. It will allow them to
borrow up to a certain limit. For this bank might need collateral security against it. On this the
interest is charged daily at valuable rate. This will be easy for zylla to fulfill their working capital
requirement.
Accounts receivable- in this fund is provided by non banking company. They issue a bill against
it which business can take it to bank for borrow of money for particular time period. Then, on
due date bank collect payment from customer. It is another option available fo zylla company.
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Customer advance – in this method the company take advance payment from customer before
providing them products and services. But it is applied when there is long time needed to fulfill
order. It is also an option available for zylla company.
Long term source
Bank loan – this is the most common source of long term finance. Here, company can take loan
from bank for period of 3-5 years. Here, loan is given on basis of value of collateral security
deposited by company. Moreover, interest charged is on monthly basis.
Retained earnings- these are the profits which is not distributed to shareholder. Therefore, zylla
company can retain its entire profit and use in order to meet its funding requirement
(Shanmugam, . and Vijayabanu, , 2020)
Debenture capital- it is a financial instruments for raising long term capital debt. In this
debenture holder becomes creditor of company and interest charged on it is fixed. Usually
debenture issued are for time period of 5-7 years. Zylla can acquire funds from this source.
Thus, zylla acquire short term fund from bank overdraft. This is because it will be easy for
them to meet working capital and buy new ferry. With help of profit company can pay back the
overdraft in specified time period. Along with it, in this source they will easily get fund and
interest rate charged will be low as compared to other.
Evaluation of various investment appraisal technique and recommending one which can be
used
It is necessary for zylla company to evaluate investment required in project. It is done with help
of investment appraisal technique. They help in appraising performance of new project. So,
there are various types of technique available which is defined as
Payback period- it is most common and simple technique used for investment appraisal. In this
it is calculated that how long does it take for project to generate cash flow in order to cover its
initial cost.
Net present value- NPV is the sum of discounted future cash inflow & outflow related to the
project. Generally, the weighted average cost capital is the discounting factor for future cash-
flows in net present value method.
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Internal rate of return- in this method the discounted rate flow at par with initial investment.
Usually, IRR is based on trail and error method. Here, the company make no loss no profit.
Accounting rate of return- an accounting technique used to measure how much profit is
expected from investment. The net profit is calculated as percentage of capital investment. Its
formula is average profit after tax / initial investment * 100 (Della Seta,. Morellec, and
Zucchi, ., 2020)
Profitability index- it state that how much per dollar will be earned in investment. It is
calculated by anticipating future cash flow by dividing it with initial outflow.
Therefore, it is recommended that zylla company should use net present value appraisal
technique which will help them in calculating value of ferry in Effective way. By that it will be
easy to use discounted methon and find out value of new ferry.
CONCLUSION
From report it is summarized that zylla company is expanding and a decision is taken to buy
ferry. They require funds to fulfill working capital. There are both short and long term source
available for it. Short term are overdraft, account receivable, etc and long term are bank loan,
debenture, retained earnings, the company can acquire funds through overdraft. Furthermore,
there are several investment appraisal technique available such as net present value, IRR,
profitability index and other. Zylla company can use net present value technique which will help
in calculating selling value of ferry.
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REFERENCES
Books and journals
Agarwal, R.N., 2020. Cultural Factors and Disruptions in the 21st Century: Disruptions
Changing Business Scenario and Performance. In Cultural Factors and Performance in
21st Century Businesses (pp. 50-67). IGI Global.
Fan, S.B., Guan, X.F.. and Zhao, R., 2020 International Business Machines Corp,
2020. Scenario based logging. U.S. Patent 10,546,279.
Shanmugam, K. and Vijayabanu, C., 2020. Understanding Generational Impact on
Online Business: The Virtual Communities and Social Collaborations Scenario.
In Strategies and Tools for Managing Connected Consumers (pp. 116-129). IGI Global.
Della Seta, M., Morellec, E. and Zucchi, F., 2020. Short-term debt and incentives for
risk-taking. Journal of Financial Economics.
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