Short term and long term sources of finance and investment appraisal techniques

This report discusses the short term and long term sources of finance for business expansion and investment appraisal techniques. It focuses on Zylla Limited, a company providing ferry services, and their need for funds for acquiring new ferries and working capital. The report also explores various sources of finance such as term loans, equity capital, bank loans, and trade credit. Additionally, it discusses investment appraisal techniques including payback period, net present value, and internal rate of return. The report concludes by highlighting the importance of business expansion and the need for funds and investment appraisal techniques.

Individual
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Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY ..................................................................................................................................3
Short term and long term sources of finance..............................................................................3
Investment appraisal techniques.................................................................................................4
CONCLUSION................................................................................................................................6
REFRENCES...................................................................................................................................7
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INTRODUCTION
Business expansion is defined as a strategy through which a company able to growth its
numbers of store at local, national and international level. Through this company also increase
their sales, profitability and customer's base (Afoke and et. al., 2013). Organisation selected for
this report is Zylla Limited that provide numbers of ferries river crossing services for goods,
vehicles and people. Now management want to buy new ferry to fulfil increased demand for
which company required funds for acquisition of ferry as well as for paying working capital
requirement of expansion. Topics include in this report are short term and long term sources of
finance for attaining Zylla objective as well as it also include investment appraisal techniques.
MAIN BODY
Short term and long term sources of finance
There are several source of funding through which a company can adopt in order to
arrange funds such as debt, retaining earning, working capital, equity, term loan, letter of credit,
euro issues and many others. In context of Zylla Limited they required funds for acquiring ferries
as well as they required working capital for expansion, for this they may adopt different long
term and short term finance sources, from which some main sources are given below:-
Long term sources Term loan: This technique is monetary loan which is essential to repaid over a specific
period of payment or after fixed time duration. This type of loan are generally last for
more than one year to ten years but in some case it last for 30 years. It is beneficial for
company because in this interest on loan will deducted from the profit as well as in this
no need to distribute profit (Ezeokoli, Adebisi and Olukolajo, 2014). But it have some
disadvantage like it is more expensive because of interest rate. In respect of Zylla Limited
they may adopt this technique for arranging funds for acquisition of ferries in effective
manner.
 Equity capital: It is mostly used technique for long term funding and in this funds are pay
by investors for the exchange of common preferred goods. This source of arranging funds
is considered as core funding in which debt funding are added. There are several
advantages of adopting this methods such as it have limited liabilities, exercise control,
bonus shares and so on. On the other hand it also have some disadvantages such as it
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incurred high risk, limited control, impact of fluctuation of market price etc.. This
techniques can adopt by respective company in order to arrange funds for acquisition of
ferries.
Short term sources Bank Loan: This technique of funding is highly flexible for business, in this method
company take funding from bank for short period of time i.e. less than a year and after
that they need to repay it to bank (Wang, Huang and Shou, 2015). Advantages of bank
loan are it is driver of growth, flexible in nature, ownership belongs to borrower, cash
discount and so on. Disadvantages of respective techniques are it required security,
interest rate risk incurred etc.. This method of funding can be adopted by Zylla Limited in
order to arrange funds for working capital of expansion.
 Trade Credit: It is technique in which company purchase goods or products from
suppliers on the credit. Means they buy services or products now and pay to suppliers
later. Advantages of this techniques is that firm can purchase products now and pay later
and it help firm when they are facing cash flow issue. Disadvantage of this it that if
company not pay on time then supplier not supply products on credit again. This
techniques can be adopt by respective company in order to arrange funds for working
capital of expansion.
Investment appraisal techniques
Investment appraisal techniques refers to collection of various techniques that are
adopted by a company in order to identify attractiveness of their investment. There are several
reasons which defend the use of investment appraisal techniques such as it help in assessing
viability of project or portfolio decision as well as it also aid in developing value (Wong, 2012).
A company may adopt most appropriate investment appraisal techniques from numbers of
techniques such as payback period, internal rate of return, net present value, accounting rate of
return and many others. In respect of Zylla Limited they may adopt some of the investment
appraisal techniques which are mentioned below:-
 Payback Period (PP): It is consider as techniques in which time duration is generally
required in order to retrieving initial cost of investment. This techniques help company in
conducting project evaluation quickly as well as it aid in minimising risk of losses. But it
didn't take time value of money or funds in consideration.
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 Net present value (NPV): According to this technique a company can conduct deviation
of its current value of cash inflow as well as outflow. The advantage of this method is
that it time value of money as well as it help in decision making procedure. On the other
hand it also have some limitation like it didn't have fix calculation guidelines which
impact on outcome.
 Internal Rate of Return (IRR): This method or technique is generally consider as
interest rate according to which all cash flow of net present value is similar to zero.
Respective method is simple to interpret as well as through it company can easily roughly
estimate required rate of return (Zaitseva, 2013). But it have some limitation such as it
ignored economies of scale as well as it didn't consider different terms of project.
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Through evaluating all techniques of investment appraisal, the most appropriate
techniques for Zylla Limited is IRR (Internal Rate of Return) because through it they can
estimate return on investment early that help in decision making procedure.
CONCLUSION
By conducting evaluation of above mentioned topics it can be summarised that every
company need to expand their business because through it they can boost their operations and
profitability ratio. While expanding business, firm required funds so that they conduct conduct
work effectively. There are two types of funds short term funds which are used by a company as
a working capital and long term funds that required for huge objective. Along with this, there are
several investment appraisal techniques which are adopted by a company in order to analyse
their investment technique such as payback period, net present value, internal rate of return and
many others.
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REFRENCES
Books and Journals
Afoke, J. and et. al., 2013. Effect of source of funding on weight loss up to 3 years after gastric
banding. Surgical endoscopy. 27(4). pp.1219-1224.
Ezeokoli, N.B., Adebisi, O.S. and Olukolajo, M.A., 2014. The practice of investment viability
appraisal in Akure, Nigeria. Ethiopian Journal of Environmental Studies and
Management. 7(5). pp.581-587.
Wang, F., Huang, M. and Shou, Z., 2015. Business expansion and firm efficiency in the
commercial banking industry: Evidence from the US and China. Asia Pacific Journal of
Management. 32(2). pp.551-569.
Wong, J., 2012. Bank funding–the change in composition and pricing. Reserve Bank of New
Zealand Bulletin. 75(2). pp.15-24.
Zaitseva, N.A., 2013. The forecast of development of the hotel business in Russia as a promising
direction of business expansion of international hotel chains. Middle East Journal of
Scientific Research. 14(3). pp.328-334.
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