Short and Long Term Sources of Finance and Investment Appraisal Techniques for Zylla Limited

This report discusses the short and long term sources of finance for Zylla Limited to acquire funds for ferry and maintain working capital needs. It also evaluates different investment appraisal techniques such as payback period, net present value, and accounting rate of return to determine the viability of the project. The report concludes that investing in the ferry is a viable project for Zylla Limited.

Business introduction
2

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
I. Short and long term sources of finance to acquire the funds for ferry and maintaining the
working capital needs of the business.........................................................................................3
II. Evaluation of the different investment appraisal techniques following the recommendation
about the viability of the project.................................................................................................4
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Business investment refers to the amount that the business invests in the different growth
prospects of the business (Cosenz, and Bivona, 2021). Zylla Limited is a business which operates
number of ferries to help the common people to cross the river and the goods. The management
of Zylla wants to expand their business and buy a new Ferry to cater the demand. This report is
divided into two sections. The first section of the report aids the Board of Directors about the
possible ways they can take up for the short and long term sources of finance. And the second
section highlights the different investment appraisal tools to check if the investment in the new
ferry is viable or not.
TASK
I. Short and long term sources of finance to acquire the funds for ferry and maintaining the
working capital needs of the business.
Sources of finance can be characterized as mode through which organizations plan their capital
for contributing help to their tasks. The proposition of acquisition of funds and the day by day
working capital need a few sources through which the capital prerequisite of Zylla Limited can
be fulfilled. Following are a portion of the modes that can be utilized by the organization for the
sourcing its money.
Long term capital need for acquisition of ferry
 Issue of Shares: The organization can give offers to people in general by welcoming
them to buy their shares. This will help it in organizing a super durable capital that the
organization does not need to pay back until its liquidation (Chatzitheodorou, and et.al.,
2019).
 Debentures: It is likewise a mode through which the organization can organize its long
term reserves. These are the kinds of credit that the firm needs to reimburse in indicated
time-frame and needs to make instalments of interest consistently consequently of this
sum. It very well may be utilized for the acquisition of Ferry.
Short term capital need for working capital needs
 Loans from Bank: Zylla can benefit advance from bank for organizing its functioning
capital. This sum is given by bank consequently for some return as interest. The

organization would need to return this sum in explicit time span (Chowdhury, and Paul,
2020).
 Trade Credit: Working capital can likewise be organized by Zylla by requesting credit
from the providers of raw materials and goods. Through this the cash that would be paid
to providers before will presently be utilized to help the organization.
II. Evaluation of the different investment appraisal techniques following the recommendation
about the viability of the project.
Investment Appraisal Techniques are used to mainly appraise the performance of the new
project. When the business is finding projects to invest in, the first thing that comes into the mind
of the investor or the business is how much the project will be profitable and which project from
the pool of investment options is most viable (Baum, Crosby, and Devaney, 2021). To aid the
management of the business and the investors into deciding about the same, investment appraisal
techniques are used. These are payback period, internal rate of return, net present value,
accounting rate of return, etc. in the case of ferry, following investment appraisal techniques are
used, and recommendation is being provided on the basis of one of the investment appraisal
technique.
Payback Period ( P B P )
This technique of investment appraisal finds out the rate at which the new investment will be
able to recover the cost of initial investment (Al-ali, 2021). This tells in how much time the
business or the investor will recover its initial cost of investment if they invest in a certain
project. The payback period of Ferry is calculated here under
YEAR ANNUAL CASH FLOW CUMULATIVE CASH
FLOW
0 ( Initial Investment ) -150000 -150000
1 55230 -94770
2 70045 -24725
3 88375 63650
4 79870 143520
5 102555 246075

Note: The amount of 45,000 which is the sale of decommissioned ferry is being included in the
cash flows of the year in which it is being sold.
Payback Period = The period up to n-1 + cumulative cash flow in n-1 year / Cash inflow
during the nth year
n=year in which cumulative cash flow turned positive
Payback Period of Ferry = 2 + 24725 / 88375
= 2 + 0.27
= 2 Years and 2.7 Months
Payback Period of Ferry is 2 years and 2.7 Months
Net Present Value ( N P V )
This is yet another technique which can be used by the investors or the business units to measure
the profitability of the project of the business (Esch, Schnellbächer, and Wald, 2019). This refers
to the present value of the future cash flows of the project and reducing the initial investment of
the project. The NPV of Ferry is calculated here under.
Cash Flows of Ferry PV factor PV Cash Flows
55230 0.'971 53628.33
70045 0.'943 66052.43
88375 0.'915 80863.12
79870 0.'888 70924.56
102555 0.'863 88504.96
TOTAL 359973.4
Note: The amount of 45,000 which is the sale of decommissioned ferry is being included in the
cash flows of the year in which it is being sold.
Net Present Value of Ferry = Total of PV Cash Flows – Initial Investment
= 359973.4 – 150000
= 209973.4
The Net Present Value of Ferry is $ 209973.4
Accounting Rate of Return ( A R R )

This technique is one of the discounting cash flow technique which tells about the rate of return
which is being earned by a project (Soka, 2020). This technique does not take time value of
money into consideration. Following is the calculation of ARR for Ferry:
Accounting Rate of Return = Average Cash Inflow / Average Investment
= {( 55230 + 70045 + 88375 + 79870 + 57555) / 5 } / [(150000 – 45000) / 2]
= (351075 / 5) / (105000 / 2)
= 70215 / 52500
= 1.33 %
From the above calculations it can be interpreted that it is highly beneficial for Zylla to
make the investment in the Ferry. The cost of capital of the business is 10 %, when the payback
period of business is analysed it can be seen that the ferry returns its initial cost of investment in
2-3 years. The net present value of the Ferry is also in good figures. The business is able to earn
a profit of $ 209973.4 on its investment of £ 150000 which is a great aspect for the business.
CONCLUSION
From the above mentioned report it can be concluded that business growth prospects are
important for any business but the understanding of the investment prospects is important as they
provide the business with different return. The above report talks about how short and long term
sources of finance helps the business to maintain its liquidity and investment aspects. The
different investment appraisal techniques show how Ferry is a viable project to invest in.

REFERENCES
Books and Journals
Cosenz, F. and Bivona, E., 2021. Fostering growth patterns of SMEs through business model
innovation. A tailored dynamic business modelling approach. Journal of Business
Research. 130. pp.658-669.
Chatzitheodorou, K., and et.al., 2019. Exploring socially responsible investment perspectives: A
literature mapping and an investor classification. Sustainable production and
consumption. 19. pp.117-129.
Chowdhury, P. and Paul, S.K., 2020. Applications of MCDM methods in research on corporate
sustainability: a systematic literature review. Management of Environmental Quality:
An International Journal.
Baum, A.E., Crosby, N. and Devaney, S., 2021. Property investment appraisal. John Wiley &
Sons..
Esch, M., Schnellbächer, B. and Wald, A., 2019. Does integrated reporting information influence
internal decision making? An experimental study of investment behavior. Business
Strategy and the Environment. 28(4). pp.599-610.
Soka, I.M., 2020. Impact of Appraisal Techniques on Investment Returns A Survey of
Institutional Investors (Doctoral dissertation, The Open University of Tanzania).
Al-ali, A.H., 2021. SOURCES OF FINANCE AND THEIR ROLE ON SMALL BUSINESS
SUCCESS IN JORDAN. Academy of Entrepreneurship Journal. 27(1). pp.1-13.