Sources of Finance and Investment Appraisal Techniques for Zylla Limited

The report discusses the various sources of finance available to Zylla Limited for the acquisition of ferry and working capital requirements. It evaluates the viability of the acquisition and operation of the ferry using investment appraisal techniques such as payback period, accounting rate of return, and net present value method. The report concludes that it is beneficial for Zylla Limited to invest in the ferry.

Task 4

Table of Contents
TASK 4.................................................................................................................................................3
INTRODUCTION................................................................................................................................3
Identify the short and long term sources of finance available to the company for the acquisition
of ferry and for the working capital requirements......................................................................3
Evaluate various appraisal techniques and recommend on the viability of acquisition and
operation of ferry.........................................................................................................................4
CONCLUSION....................................................................................................................................5
REFERENCES.....................................................................................................................................6

TASK 4
INTRODUCTION
The sources of the finance is the the shares, debentures, borrowings, retained earning,
working capital, loans and many more. These funds are being utilised by the organisation to invest
in the business activities to start a new project or for expanding the operations.. These business
operational activities are categorised on the basis of ownership and time period. Through the help of
investment appraisal techniques, an investor can estimated whether to invest in the project 0or not
by applying the various techniques (Lingesiya and Nurullah, 2018). The report is engaged of the
various long term and short term sources of finance for completing is working capital requirements.
It is based on the Zylla Limited. Then, by the help of the investment appraisal techniques , the
decision of selection of the project will be taken by the investor.
Identify the short and long term sources of finance available to the company for the acquisition of
ferry and for the working capital requirements.
Sources of finance can be defined as mode through which companies arrange their capital
for providing support to their operations. The proposal of purchase of ferry and the daily operating
working capital need some sources through which the capital requirement of Zylla Limited can be
satisfied. Following are some of the modes that can be used by the company for the arranging its
finance.
Long term capital need for acquisition of ferry
 Issuing shares- The company can issue shares to the public by inviting them to purchase
their equity. This will help it in arranging a permanent capital that the company is nit
required to return until its liquidation.
 Debentures- It is also a mode through which the company can arrange its long term funds.
These are the types of loan that the firm has to repay in specified time period and has to
make payment of interest regularly in return of this amount. It can be used for the purchase
of ferry(Agbloyor and et.al, 2021).
Short term capital need for working capital needs
 Bank Loan- Zylla can avail loan from bank for arranging its working capital. This amount
is provided by bank in return of some interest. The company would have to return this
amount in specific time period.
 Trade Credit- Working capital can also be arranged by Zylla by asking for credit from the
suppliers of goods. Through this the money that would be paid to suppliers earlier will now
be used to support the company.

Evaluate various appraisal techniques and recommend on the viability of acquisition and operation
of ferry.
Amount of interest required to be paid each year for the acquisition of funds for purchase of ferry =
150000 * 3 /100 = £ 4500
Pay back period = It is the method of calculating the time period in which the amount invested in
the project can be returned back. It is the length of years in which the amount of return to its break
even point. It is always recommended to have shorter pay back period as it helps the firm in
maintaining the liquidity (Bader, Al-Nawaiseh and Nawaiseh, 2018).
Year £000
Annual cash
inflow
Interest rate Annual cash
inflow
Cumulative
cash flow
0 -150000
1 55230 4500 50730 -99270
2 70045 4500 65545 -33725
3 88375 4500 83875 50150
4 79870 4500 75370 125520
5 102555 4500 98055 223575
Pay back time period = Initial investment / Cash flow per year
= 2 + 33725 / 83875
= 2 + 0.4
= 2.4 years
Accounting rate of return- It determines the amount of return that can be received from the
investment made in the business. But it does not takes into account the time value of money while
calculating the amount of profits (Harris, Hoang and Ngan, 2017).
Accounting rate of return = Average cash inflow / average investment
= [(50730 + 65545 + 83875 + 75370 + 53055) / 5] / [(150000 – 45000) / 2]
= 328575 / 5) / ( 105000 / 2)

= 65715 / 52500
= 1.25 %
Net Present Value method- This method is used to recognise the present value of returns that are
expected to gain by the business after the set time period. It helps in determining that whether the
amount of capital invested is worth enough for invstment.
Net Present Value method = Net cash inflows at discounted value - Net cash outflow
Year £000
Net Annual cash inflow Discounting value @ 10
%
Cumulative
cash flow
1 50730 0.971 49258.830
2 65545 0.943 61808.935
3 83875 0.915 76745.625
4 75370 0.888 66928.560
5 98055 0.863 84621.465
Total 339363.415
NPV = 339363.415 – 150000 = £ 189363.415
From the above calculations, it can be interpreted that it is very much beneficial for Zylla to
make investment in the ferry. At present the cost of capital of the company is 10% but its cost of
capital is just around 1%. keeping this figure at a side, when the pay back period of the investment
is analysed, it is between 2 to 3 years which is very good. Also the Net present value of the firm is
good enough and attracting to make investment. The firm is able to earn the profit of £ 189363.415
on the investment of £ 150000. Thus, it is very good opportunity for the firm to make investment in
the purchase of ferry.
CONCLUSION
From the above report, it can be summarised that by the application of various investment
appraisal techniques, companies can identify the proposal which is beneficial for the company. This
also helps in knowing the present value of the money that the business expects to receive in future
out of the investment it would make in present. Even, on how much percent the investor will get the
return on the investment cal be evaluated. Also the sources of finance which are available to the
company Zylla Ltd is explained.

REFERENCES
Books and Journals
Agbloyor and et.al, 2021. Investment appraisal: Akwaaba university hostel projectInvestment
appraisal: Akwaaba university hostel project. Emerald Emerging Markets Case Studies.
Bader, A., Al-Nawaiseh, H. N. and Nawaiseh, M. E., 2018. Capital Investment Appraisal Practices
of Jordan Industrial Companies: A Survey of Current Usage. International Research
Journal of Applied Finance. 9(4). pp.146-161.
Harris, E., Hoang, T. and Ngan, G., 2017. Accounting for capital investment appraisal: time for a
radical change?. In The Routledge Companion to Accounting Information Systems (pp. 173-
189). Routledge.
Jagun, Z. T., Daud, D. B. and Samsudin, S. B., 2020. Risk in Property Appraisal Report: A
Perception of Estate Surveyors and Valuer in Nigeria. Journal of Computational and
Theoretical Nanoscience. 17(2-3). pp.814-819.
Lingesiya, K. and Nurullah, M., 2018. Capital Investment Appraisal Practices in the Emerging
Market Economy of Sri Lanka.