Long and Short Term Sources of Funds for Acquisition of Ferry

This report discusses the long and short term sources of funds required for the acquisition of a ferry and fulfilling working capital needs of an organization. It also evaluates different techniques of investment appraisal and provides recommendations for the viability of the acquisition. The report is based on the case of Zylla Limited, an entity operating ferries for river crossing services.

TASK 4

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Description of long and short term sources of funds that are required for the acquisition of
ferry and fulfil working capital needs of organisation.................................................................1
2. Evaluation of different techniques of investment appraisal and recommendation for the
viability of acquisition.................................................................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Zylla Limited is one of the entities which are operating large number of ferried which are
providing river crossing services for goods, vehicles and individuals. The managers of the
enterprise have decided to buy a new ferry so that the business could be developed (Jung, 2016).
Present report is based upon the same and for this purpose different topics such as long as well as
short term sources of funds along with investment appraisal techniques are discussed in this
project.
MAIN BODY
1. Description of long and short term sources of funds that are required for the acquisition of
ferry and fulfil working capital needs of organisation
As the managers of Zylla are planning to buy new ferry therefore it is very important for
the management to make sure that they are having sufficient funds for the acquisition. For this
purpose different sources of funds could be used. Description of all of them is as follows:
Long term sources: All the sources which are available to the organisation for more than
one year and includes private as well as public funding are considered as the part of it. For the
successful execution of all the operations it is used by all the companies. In order to buy a new
ferry these could also be used by Zylla Limited. All the options which are available to the entity
are as follows:
 Issuing debenture in the market: It is an external and long term source of fund which
can help to collect finance to buy a new ferry. It allows the investors to provide funds to
an organisation and get an appropriate percentage of interest on the money which is
invested by them. It can also fulfil the requirements of working capital because it will be
beneficial for Zylla to carry out operations in systematic manner.
 Bank loan: It is also a long term source of finance in which an organisation can take loan
from a bank by providing a business asset as a collateral security. If it is selected by the
company then it is very important for the borrower to pay a fixed amount to the bank
along with the instalment as interest (Bank loan, 2019).
Short term sources: All the sources of finance which could be used to generate funds in
less than one year are known as short term sources. In order to carry out day to day operations it
is very important for an organisation to have them as it fulfils requirements of working capital.
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As Zylla Limited is planning to buy a new ferry therefore there are various short term sources of
funds which could be acquired by it to meet its short term needs. Description of some of them is
as follows:
 Collection from creditors: It is one of the major short term source of fund which is
beneficial for the companies to generate funding in a small period. With the help of it
Zylla Limited will be able to acquire funds from the external parties which may provide
finance for a short period. With the help of it working capital need of the entity will be
fulfilled and help to attain the objective of acquiring a new ferry (Black and Szado,
2016).
 Selling old and waste business assets: All the organisations have some assets which are
not useful for business therefore all of them could be sold for the purpose of generating
funds for future operations. It is considered as short term source of fund because an asset
could be sold by the managers whenever they want. It is a beneficial source of finance for
Zylla limited which could be used by the management to acquire a new ferry.
2. Evaluation of different techniques of investment appraisal and recommendation for the
viability of acquisition
As Zylla Limited planning to acquire a new ferry therefore it is very important for the
managers of the company to use investment appraisal techniques so that it can be analysed that
the proposed investment will help to reach the business goals or not. All the techniques which
could be used by Zylla are as follows:
Pay back period: It is a method of investment appraisal which could be used by Zylla
for the purpose of determining the period in which the cost of investment will be recovered
(Alkaraan, 2017).
Formula = Completed years + [(Initial investment – CCA of completed year) / Cash
inflow of next year]
Initial investment = 150000
Years Cash inflow Cumulative cash inflow
1 55230 55230
2 70045 125275
3 88375 213650
2

4 79870 293520
5 57555 351075
Pay back period = 2 + [(150000 – 125275) / 88375
= 2 + 2.28
= 2.28
Internal rate of return: It can be defined as an interest rate which is acquired by an
organisation on an investment by making the cash inflow equals to zero.
Net present value: It can be defined as the variation between the initial investment and
discounted cash inflow. With the help of it Zylla Limited will be able to analyse the present
value of the ferry in which investment will be made (Schlegel, Frank and Britzelmaier, 2016).
Calculations for both the above described techniques are as follows:
Year Cash flow PV @ 3% DCF
0 -150000 1 -150000
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
5 45000 0.836 37620
NPV 208758.415
IRR 34.14%
By analysing all the above described investment appraisal techniques it has been
determined that Zylla Limited will be able to generate higher profits with the help of new ferry
as all the results are positive.
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CONCLUSION
From the above project report it has been concluded that while planning for buying assets
for business it is very important for organisations to generate funds from short as well as long
term sources such as creditors, debentures, bank loan etc. In order to determine the ability of a
new project to generate higher profits investment appraisal techniques such as NPV, IRR could
be used.
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REFERENCES
Books and journals:
Alkaraan, F., 2017. Strategic investment appraisal: multidisciplinary perspectives. In Advances
in Mergers and Acquisitions (pp. 67-82). Emerald Publishing Limited.
Black, K. and Szado, E., 2016. Performance analysis of options-based equity mutual funds,
closed-end funds, and exchange-traded funds. The Journal of Wealth Management.
19(1). pp.51-69.
Jung, A., 2016. Have minutes helped to predict fed funds rate changes?. Journal of
Macroeconomics. 49. pp.18-32.
Schlegel, D., Frank, F. and Britzelmaier, B., 2016. Investment decisions and capital budgeting
practices in German manufacturing companies. International Journal of Business and
Globalisation. 16(1). pp.66-78.
Online
Bank loan. 2019. [Online]. Available through:
<https://www.nibusinessinfo.co.uk/content/advantages-and-disadvantages-bank-loans>
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