Financial Planning and Management for Zylla Ltd.

The assignment provides a detailed financial plan for Zylla Ltd., including the calculation of net present value (NPV), internal rate of return (IRR), and various funding options such as short-term and long-term financing. It also analyzes the feasibility of acquiring a new ferry, concluding that it would be beneficial for the company due to its high internal rate of return.

Task 4

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
Task 4. Calculation and description of viability of purchasing new ferry..................................1
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
The investment proposal decision refers to an effective analysis of various investment
alternatives and choosing the best decision which will provide greater return to the business with
the highest cost efficiency. This decision is taken into account after analysing various major
informations like cost of investment, time required, future return, etc. This report includes
calculation and description of viability of investing money in acquiring ferry by Zylla limited.
MAIN BODY
Task 4. Calculation and description of viability of purchasing new ferry
As per the above scenario, Zylla limited wants to purchase a new ferry and also wants to
acquire funds for the acquisition of ferry and to fulfill its working capital requirements (Adrian,
and Ashcraft, 2016). For the purpose of fulfilling this requirement, company can generate
sources from various short term as well as long term sources. Some major sources of funding
are:
short term sources: Bank credits: for the purpose of expansion of business, banks provide short term credit to
companies. This fund can be used by the Zylla ltd. For its expansion plan. Through bank
credit, company can borrow money either at single time or in installments. Bank loans,
bank credits, overdraft are some sources of bank credit (Long-Term & Short-Term
Financing, 2018). Loan from co-operative banks: it can be termed as the best source of short term finance.
These banks provide sources for personal as well as business purposes. Funding from co-
operative banks could be more beneficial for zylla ltd. as it has lower rate of interest as
well as secured source of funding. Angles: these are some individuals who or companies who provide funds to small
companies by directly investing in them. For the purpose of minimizing there risk of
money, they reserve their right of supervision of company's management decision.
 Commercial paper: it is an unsecured promissory note which can be issued by Zylla ltd.
To raise money for fulfilling its short term working capital requirement. It is taken by
banks or financial corporations which promises the company to pay a sum of amount
equal to the face value of paper at the time of maturity of it.
Long term sources
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 Equity shares: it shows the owner's capital investment in the company. Being a public
ltd. Company, Zylla ltd. Can borrow funds from public as well by issuing them equity Sweat equity shares: company can also get shares from its internal sources i.e. from its
employees, directors etc (James, 2015). by providing them company's shares at
discounting rate. It is necessary to list shares on stock exchange before providing them to
employees or directors as sweat equity shares. Loans from financial institutions: financial institutions provides long term funds for
commercial purpose to expand their business (Baños-Caballero, García-Teruel and
Martínez-Solano, 2016). These institutions anlayse company's financial conditions,
economical, technological condition and viability before providing them funds for
expansion purpose. Corporate bond: corporate bonds can be issued Zylla ltd. With an aim to collect money
for the expansion of its business. Its maturity date is generally one year starting from the
date of issue. Although, company can also give an option to redeem their bond before
maturity date and convert them into equity of the company (Lekkakos and Serrano,
2016). Bank loans: it is the most common way to fund finance for long time. Bank provides
fund to companies for their commercial purpose for specific time period. Bank analyses
economical condition of the company before lending money to any company (Pais and
Gama, 2015). Zylla ltd. Can source its funds for the expansion purpose or fulfilling its
working capital requirement from raising bank loans. It is the safest way of sourcing the
finance.
Investment appraisal techniques
Accounting Rate of Return
Accounting rate of return refers to a financial ratio which can be used by the business in
its capital budgeting process. It considers average profits and initial investments for the purpose
of deriving average rate of return rather than time value of money concept.
Pay back period
This is the length of the time that a project will take t cover up the initial cost that have
been invested in the project. the payback period of a given investment is a significant measure
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that determines the fact that weather to undertake a project or not. This method do not take into
consideration the time value of the money.
Calculation of Net Present Value
Year
Cash
inflows
(in £)
PV
factor
@ 3%
PV of
cash
flows
(in £)
1 55230 0.971 53628.3
2 70045 0.943 66052.4
3 88375 0.915 80863.1
4 79870 0.888 70924.6
5 57555 0.863 49670
5 45000 0.863 38835
Sum of discounted
cash flows 359973
Less: initial
investment 150000
NPV 209973
Interpretation
From the above table in can be interpret that if company invests in acquisition of a new
ferry, company will gain a net cash flow amounted 356610. Hence, it would be beneficial for
Zylla Ltd. to invest in acquisition of new ferry.
Calculation of Internal Rate of Return
Year Cash inflows (in £)
0 -150000
1 55230
2 70045
3 88375
4 79870
5 57555
5 45000
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IRR 38.16%
Interpretation
If company acquires a new ferry, it will gain internal income @ 38.16%. Hence,
company may invest in it. If the internal rate of return of any business is more than 30% it is
beneficial for the business. Investment in acquisition of ferry is providing 38.16% return which is
more than the ideal return. Hence, Zylla Ltd. Can acquire a new ferry.
CONCLUSION
From the above report it can be concluded that there are number of sources available if
Zylla ltd. To source funds for the business for its expansion plan and fulfillment of its working
capital requirement. It can source funds for short term or long term as well as per its requirement
of funds. Decision of acquisition of new ferry is also beneficial for company as it would result in
gaining cash flow for the business.
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REFERENCES
Books and Journals
Adrian, T. and Ashcraft, A.B., 2016. Shadow banking: a review of the literature. In Banking
Crises (pp. 282-315). Palgrave Macmillan, London.
Baños-Caballero, S., García-Teruel, P. J. and Martínez-Solano, P., 2016. Financing of working
capital requirement, financial flexibility and SME performance. Journal of Business
Economics and Management. 17(6). pp.1189-1204.
Pais, M. A. and Gama, P.M., 2015. Working capital management and SMEs profitability:
Portuguese evidence. International Journal of Managerial Finance. 11(3). pp.341-358.
James, J. A., 2015. Money and capital markets in postbellum America (Vol. 1436). Princeton
University Press.
Lekkakos, S. D. and Serrano, A., 2016. Supply chain finance for small and medium sized
enterprises: the case of reverse factoring. International Journal of Physical Distribution
& Logistics Management. 46(4). pp.367-392.
Online
Long-Term & Short-Term Financing. 2018. [ONLINE] Available through
<https://www.tutorialspoint.com/international_finance/long_and_short_term_financing.ht
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