Analysis of Short and Long Term Sources of Finance for Acquiring a New Ferry

This report analyzes the short and long term sources of finance for acquiring a new ferry. It discusses the different sources of finance, such as bank loans and retained earnings, and evaluates their viability. Additionally, it examines various investment appraisal techniques, including payback period, net present value, accounting rate of return, and internal rate of return, and suggests the viability of the project for the given company.

Task 4: Business
Scenario for Individual
Report

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Analysis of short and long term source of finance to acquire new ferry................................3
2. Analysis of different investment appraisal techniques and suggesting the viability of project
of given company........................................................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
In the business entities, value of finance is as similar as blood in human body. Companies
need finance to accomplish different types of activities and operations on time (Cairns and
Wright, 2019). It is almost impossible for companies to gather all funds by own resources. In
order to fulfil financial needs, corporations acquire funds from different internal and external
sources. The project report is based on a company that is Zylla limited. This company offers
river crossing service by ferry and they are planning to expand their business and for this they
need funds. Therefore in the report, short and long term source of finance are covered.
MAIN BODY
1. Analysis of short and long term source of finance to acquire new ferry.
Source of finance- There are different types of source of finance which are used by
companies to fulfil own needs. Herein, underneath some key source of finance are mentioned
that are as:
1. Short term source of finance- It is a source of finance from which funds are acquired by
companies in order to fulfil need of short term expenditures. Below some financial source are
mentioned that are as follows:
 Bank loan- This is one of the best source of short term finance in which companies can
get funds from banks or any other financial institution. Usually, banks provide funds for
both short term and long term needs (He, 2019). Such as in the above Zylla limited
company they can get funds from banks in order to manage their working capital needs.
 Overdraft- It is also an important source of finance in which companies can withdraw the
amount even after end of their bank balance. Though, this facility is not provided to all
individuals. It is provided those whose credit score is higher.
2. Long term source of finance- It is a source of finance from which funds are acquired by
companies in order to fulfil need of long term expenditures. Below some financial source are
mentioned that are as follows:
 Retained earning- This is a source of finance which is generated inside of a business. It
can be gained only if company decides not to pay dividends to shareholders. Such as in

the Zylla limited company they can get fund by retained earnings and can acquire new
ferry.
 Term loan- It is also considered as one of the main source of long term finance in which
companies can gather funds from big financial institutions (Naqash, Wani and Hussain,
2019). Such as in the aspect of above company, they can acquire funds from taking loan
by financial companies. Herein, this is important to know that rate of interest should be
lower so that cost can be controlled.
2. Analysis of different investment appraisal techniques and suggesting the viability of project of
given company.
Investment appraisal techniques – There are different types of techniques in order to make proper
analysis of projects or proposals. Herein, underneath some key methods of analysing efficiency
of projects are mentioned in such manner:
Payback period method – It can be defined as a type of technique in which estimated time period
is computed which may occur in process of covering cost of investment. If time will shorter then
this is considered that project can be beneficial for company. It has some benefits and limitations
which are as follows:
Benefits-
 One of the key advantage of this technique is that it is very simple to use. It does not
include any complex calculations.
 In addition, this technique is considered as one of the best method of comparing different
projects.
Limitations:
 Under this technique, time value of money factor is not considered and due to which
projects can not be evaluated effectively.
 Along with in this technique, return on investment factor is also ignored. It only calculate
estimated time period.
Net present value method- This is a type of technique in that present value of projects are
evaluated by making difference between discounted cash flow and value of investment made
(Simona and Cristian, 2019). The discounted cash flow is computed as per present value factor.

Benefits-
 This technique is useful in order to measure efficiency of projects because under it all
types of cash flows are considered.
 It is helpful for companies for measurement of level of profitability.
Drawbacks-
 Major disadvantage of this technique is that under it required rate of return is computed
as per the assumptions.
 This technique can not be applied on different size of projects. It can be applied on
similar size of projects.
Accounting rate of return- This technique is also known by average rate of return. Under it,
expected level of return is computed on a particular capital investment project. In other words,
this is a percentage of return.
Benefits-
 This method facilitates the comparison of new product project with that of cost
minimising project.
 This is easy to compute as well as simple to understand.
Drawbacks-
 Under this method, time factor is ignored which is a huge drawback.
 Along with, this method does not focus on external factors which can impact profitability
of project.
Internal rate of return- It is a type of technique in which expected rate of return on a particular
investment is calculated (Yan, 2019). This has some benefits and drawbacks such as:
Benefits-
 In this technique cost of capital is not required that makes analysis more accurate.
 As well as it is simple to use and calculate.
Limitations-

 Under this technique, size of project is ignored.
 In addition, it does not consider future cost of project also.
Evaluation of project-
Year Cash flow PV factor DCF
1 55230 0.971 53628.33
2 70045 0.943 66052.435
3 88375 0.915 80863.125
4 79870 0.888 70924.56
5 57555 0.863 49669.965
321138.415
NPV= DCF- Investment
= 321138.415 – 150000
= 171138.41
Analysis- On the basis of above calculated value of NPV of given project of Ferry, this can be
suggested to company that they should acquire the ferry as it is producing positive result.
CONCLUSION
On the basis of above project report, it can be concluded that companies can generate
funds from different types of resources. The report concludes both short and long term source of
finance. As well as this can be concluded that company should acquire the new ferry.

REFERENCES
Books and journal:
Cairns, G. and Wright, G., 2019. Making scenario interventions matter: Exploring issues of
power and rationality. Futures & Foresight Science, 1(1), p.e10.
He, S., 2019. Scenario analysis for container shipping investment strategies.
Naqash, F., Wani, S.A. and Hussain, M., 2019. An Overall Scenario of Pesticides Business
Pattern in Kashmir: A Special Reference to Apple Crop. Indian Journal of Economics
and Development, 15(3), pp.392-401.
Simona, F. and Cristian, P., 2019. Rainfall option impact on profits of the hospitality industry
through scenario correlation and copulas. Annals of Operations Research, pp.1-
24.Gormley, A. and Gormley, R., 2019. Test Scenario Design Models: What are.
Yan, Y., 2019, July. Consultancy project for the employer scenario of Google. In 2019
Scientific Conference on Management, Education and Psychology (Vol. 1, pp. 25-29).
The Academy of Engineering and Education.