Finance Report: Business Scenario for Individual Report (Task 4)

This report analyzes the financial aspects of a business, specifically focusing on a company seeking to expand its operations by acquiring new ferries. The introduction emphasizes the importance of financial resources for business entities and the various sources from which companies gather funds. The main body of the report explores both short-term and long-term sources of finance, including bank credit, commercial paper, retained earnings, and loans from financial institutions. It then delves into investment appraisal techniques, such as payback period, accounting rate of return, net present value (NPV), and internal rate of return (IRR). The report uses the NPV method to evaluate the viability of the ferry acquisition, concluding that the project is beneficial based on a positive NPV. The conclusion reiterates the significance of finance for business activities and the application of investment appraisal techniques. The report references relevant books and journals to support its analysis.

Business scenario for
individual report (Task
4)
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Introduction
In the aspect of business entities this is important to assure availability of proper financial
resources. It is so because finance is a necessary part among all kinds of resources. In order
to fulfil need of finance companies gather funds from different types of sources (Buchanan,
2014). The project report is based on a business entity that deals in offering services for river
crossing via ferries. In current time period, this company want to expand own business by
acquiring new ferries. In addition, implementation of investment appraisal techniques is also
done in the report.
MAIN BODY
1. Short term and long term sources of finance to fund the acquisition of the ferry and for the
company’s working capital needs.
In the current business scenario, there are vital range of source of finance through which
funds are acquired by companies. It depends on businesses that from which source of
finance they get funds. Majorly, there are two types of source of finance that are as
follows:
Short term source of finance- It may be understood as a type of source of finance by that
companies can get fund for shorter time period for less than one year. Like Zylla limited
company can get funds from underneath source of short term funds:
 Bank credit- Banks offer quick term funds to business entities which is recognised as
bank credit. Banks give this form of credit in such ways:
(a)Loan- It is provided by banks to companies on the basis of security of assets.
Basically, this is suitable for companies because of lower interest rate and easy
accessibility. Like Zylla limited company may fulfil financial needs by this source of
finance and complete requirement of working capital.
(b) Overdraft- This is a form of service which is offered by banks to customers in which
they can get funds even after end of bank balance. It is suitable for companies like
Zylla limited in order to fulfil make payment of day to day activities.
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 Commercial paper- This is also one of the key source of short term finance by which
companies acquire funds from financial institutions (Ehrhardt and Brigham, 2016).
Basically, under this source of short term funding, funds are provided in accordance of
companies’ credit score and goodwill in market. Such as in the aspect of above Zylla
limited company, they can get funds from commercial paper in order to fulfil requirement
of paying day to day expenses.
Long term source of finance- This is completely different from above short term finance. Under
it, companies can get financial assistance for more than one year. Companies acquire funds from
long term sources in the case when they want to do large expenses. Like Zylla limited company
may fulfil financial needs from below mentioned source of long term finance in order to acquire
new ferry:
 Retained earnings- It is a key source of long term finance which can be generated internal
aspect of companies. Basically, retained earnings can be generated when companies do
not distribute their revenues to their shareholders. Like the above Zylla limited company
can acquire new ferry by help of retained earning if they do not share their profits with
shareholders.
 Loan from financial institutions- Similar as above, it is also a key source of long term
finance. Under this, companies can get financial assistance (Genest, Gendron and
Bourdeau-Brien, 2013). Basically, this is provided to business entities in accordance of
their financial records. Such as Zylla limited company may get funds from this source for
acquiring new ferry.
2. An analysis of different investment appraisal techniques and suggesting the viability of the
acquisition and operation of new ferry based on one suitable investment appraisal
technique.
In order to make proper analysis of different investment proposals, there are various types
of techniques which are applied. Underneath, some techniques are mentioned which are as
follows:
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 Payback period- It can be defined as a technique which is used in order to compute
time period which may incurred in process of covering cost of investment. This is
computed by a formula that is as follows:
When there is equal cash flow-
Payback period = Initial investment / cash flow
When there is unequal cash flow-
Payback period = Years before recover + UN-recovered cost in beginning of year +
Cash flow in the year.
 Accounting rate of return – This is defined as kinds of method, that is applied by
companies in order to compute estimated rate on which profit can be generated on
investments. There is a particular formula which is as:
ARR = (Average annual profit after depreciation / Investment) x 100
 Net present value method- This can be defined as a form of technique that is
applied for computing the present value of any particular project (Maxfield, 2019).
This is computed by below mentioned formula that is as follows:
NPV = Discounted cash flow – Initial investment
 Internal rate of return- This is a type of method in that internal rate of return is
computed in order to assess efficiency of projects.
Formula to calculate IRR:
Evaluation of viability of ferry:
Initial investment = 150000
Year Cash flow PV factor @ Discounted
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10 % cash flow
1 55230 0.909 50204.07
2 70045 0.826 57857.17
3 88375 0.751 66369.625
4 79870 0.689 55030.43
5 57555 0.621 35741.655
265202.95
NPV = 265203-150000
= 115203
Analysis- On the basis of above computed net present value, it can be find out that acquisition of
new ferry can be beneficial for above company. This is so because their project’s present value is
in positive.
CONCLUSION
In the end of report this has been articulated that finance is essential for companies to
complete different activities. Report concludes about various source of finance including
short and lengthy term source. Further part of report presents about investment appraisal
techniques like NPV, IRR etc. The end part of report concludes that above company should
acquire new ferry.
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REFERENCES
Books and journal:
Buchanan, J. M., 2014. Public finance in democratic process: Fiscal institutions and individual
choice. UNC Press Books.
Ehrhardt, M .C. and Brigham, E .F., 2016. Corporate finance: A focused approach. Cengage
learning.
Genest, C., Gendron, M. and Bourdeau-Brien, M., 2013. The advent of copulas in finance.
In Copulae and Multivariate Probability Distributions in Finance (pp. 13-22).
Routledge.
Maxfield, S., 2019. Governing capital: International finance and Mexican politics. Cornell
University Press.
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