Short term and long term sources of finance

This report discusses the short term and long term sources of finance for businesses and provides recommendations for investment appraisal techniques. It focuses on Zylla Limited, a company involved in providing farriers and river crossing services, and their decision to buy new farriers. The report explores various sources of finance, such as commercial paper and bank credit, and discusses different investment appraisal techniques, including accounting rate of return, payback period, internal rate of return, and net present value. It concludes by highlighting the importance of financial resources for businesses and the benefits and drawbacks of different sources of finance.

Business Scenario for
Individual Report

Contents
MAIN BODY.......................................................................................................................................3
Short term and long term sources of finance......................................................................................3
Different types of investment appraisal techniques and recommendations regarding the viability of
the acquisition and operation of the project proposed........................................................................4
CONCLUSION....................................................................................................................................6
REFERENCES....................................................................................................................................7

INTRODUCTION
Business resources are known as an essential factor which are used to production,
consist of labour and land with the help of capital and enterprise (Buchanan, 2014). Major
requirement of resources are to carry out business operations smoothly. In a business process,
financial resources are known as one foremost thing which used to carry out main operations
by identifying long term investments as well as outcomes of buying goods and services. This
report is based on Zylla Limited which involved in providing farriers and river crossing
services in terms of vehicle, goods and people. Now organisation wants to buy new farriers
therefore this report determined investment appraisal technique to firm with a purpose of
capital budgeting.
MAIN BODY
Short term and long term sources of finance
In an organisation, short term and long term sources are always available which can
be used for maximise funds of business. Now its decision of management of firm that from
which source they wants to raise funds and capital that can assist them to implement new
ideas in business. Zylla limited can raise funds from such sources as:
Short term sources: Short term sources are defined as facility of loan and credit which are
available for short period as for less than one year (Ehrhardt and Brigham, 2016). For an
organisation there are several type of short term finance are available which has different
characteristic and can be used in different situation. Some of them are explained below as:
 Commercial paper: These type of funds are provided by banks and financial
institutions to the organisation. Commercial paper is an unsecured debt which is used
by businesses for their everyday expenses. In context of Zylla limited, these kind of
funds can be raised for the payment of their further expenses.
 Bank Credit: It is a total amount of combined funds which are available for an
individual or a business organisation from bank. It can be in the form of:
 Loan: It is an extension of funds from bank to another party with a clause that the
money will be repaid in the given time period. Each and every bank charge
interest against the loan at a lower rate. For Zylla ltd., it can be meaningful source
of fund that can help to fulfil capital requirements easily.

Long term sources: This is defined as loan or credit which are available for business or
individual for a long run duration i.e. over one year. Main objective of these funds are of
meeting huge expenses or to implement a huge budget target.
 Loan from financial institutions: Some of the financial institution in the market
provide long term loan to the businesses by analysing their past performance. Zylla
Ltd can get a desired fund from such institutions in order to fulfil their long term
targets easily.
 Retained earnings: It is the most preferred sources of fund which allows the
company to save their earnings after the payment of their all expenses. For Zylla ltd.,
it could be a most beneficial option to raise funds for their business by the payment of
taxes, expenses and after the distribution to their stakeholders.
Different types of investment appraisal techniques and recommendations regarding the
viability of the acquisition and operation of the project proposed
A wide range of methods are available for different kinds of investment proposals that
can be implemented in order to evaluate the suitability of a particular investment. The
different techniques are explained below along with their respective formulas.
Accounting Rate of Return – This is also referred to as average rate of return and
can be defined as a financial ratio that is basically used in capital budgeting (Genest, Gendron
and Bourdeau-Brien, 2013). The average rate of return does not take into consideration the
concept of time value of money but is helpful for a company in determining the rate at which
a company can earn profits through a particular investment. It is calculated as follows-
Payback Period – It refers to the time that is required for recovering the funds that
are spent out during an investment. To explain in simple words, payback period is the amount
of time an investment takes to reach the break-even point. Thus, it can be referred to an
effective measure that is used to measure risk associated with a particular investment. The
method to calculate the payback period is explained below-

Internal Rate of Return – This particular method can be referred to as the interest
rate at which the NPV or Net Present Value of all the positive as well as negative cashflows
in an investment becomes zero (Maxfield, 2019). This technique is usually used to evaluate
how attractive a particular project or an investment made by the company is. The formula to
calculate IRR is given below–

Analysis – From the above calculation of NPV, it can be analyzed that the acquisition
of new ferry will be advantageous for the respective organization. The reason behind this is
that the present value of their project is positive.
Net Present Value Method – NPV Method is basically used for calculating the
present value of a company’s project wherein it is planning to make an investment. This is an
advantageous method as the amount of cash in an investment that was made initially can
either be increased or decreased. The formula for this method is –
CONCLUSION
It can be concluded from the above report that financial resources are important for
businesses if they want to carry out their operations smoothly. They also help in attaining the
goals and objectives of a project within a company. The report explains the various sources
that can be used to raise funds along with their benefits and drawbacks.

REFERENCES
Books & Journals
Buchanan, J. M., 2014. Public finance in democratic process: Fiscal institutions and
individual choice. UNC Press Books.
Ehrhardt, M .C. and Brigham, E .F., 2016. Corporate finance: A focused approach. Cengage
learning.
Genest, C., Gendron, M. and Bourdeau-Brien, M., 2013. The advent of copulas in finance.
In Copulae and Multivariate Probability Distributions in Finance (pp. 13-22).
Routledge.
Maxfield, S., 2019. Governing capital: International finance and Mexican politics. Cornell
University Press.