Finance Report: Sources of Funding for Zylla Ltd's Ferry Acquisition

This report, prepared for Zylla Limited, a company operating ferry services, analyzes the financial implications of acquiring a new ferry to meet increased demand. The report begins by evaluating both short-term and long-term sources of finance, including overdraft agreements, cash credit, commercial papers, bank loans, and the issuance of debentures and equity. It then proceeds to assess the viability of the ferry acquisition using investment appraisal tools such as Net Present Value (NPV), Internal Rate of Return (IRR), Accounting Rate of Return (ARR), and payback period. The analysis indicates a positive NPV, a high IRR, and a favorable ARR, alongside a short payback period, suggesting the project's financial feasibility and profitability for Zylla. The report concludes by summarizing the importance of both funding sources and investment appraisal techniques in making sound financial decisions.

Individual Report

INTRODUCTION...........................................................................................................................3
1. Determining short and long term sources of the finance for funding the acquisition and in
meeting working capital requirements.........................................................................................3
2. Evaluation of several investment appraisal tools and recommending feasibility or viability
of acquisition...............................................................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The present report is based on Zylla Limted, operates large number of the ferries which
facilitate river crossing related services for the people, goods and the vehicles across river.
Furthermore, study presents the sources used for raising short and long term funds. Moreover it
also includes evaluation of the capital budgeting techniques in order to assess viability of the
project or acquisition.
1. Determining short and long term sources of the finance for funding the acquisition and in
meeting working capital requirements
Short term sources
Overdraft agreement- By entering into overdraft agreement with bank, it will allow the
company to borrow amount up to certain limit. In exchange of the borrowing, bank may ask for
the security in form of the collateral and they may charge interest on daily basis at variable rate
on outstanding debt (Cortina, Didier and Schmukler, 2018). On the other hand, if a business is
very much confident in making quick repayments then overdraft agreement is counted as
valuable financing source to which most of the companies resort for the purpose of funding
acquisitions.
Cash credit- It is been defined as arrangement made by bank for clients to withdraw the
cash exceeding their respective account limits. It is the facility which is generally sanctioned for
mainly one year, but it could be extended to 3 years. In case of the special request made by the
company or the client, time limit could further extended by bank. However, the extension of an
allotted time majorly depends on consent of bank and past or previous performance of client. The
interest rate charged by bank on the cash credit depends on time for which cash had been
withdrawn & amount of the cash.
Commercial papers- It is the short term instrument that the company could use for
funding the acquisition of Ferry and meeting its working capital needs. This financing instrument
helps in raising the money from market and act as an unsecured type of the promissory notes that
it offers to investors directly or indirectly through dealers (Khmel and Zhao, 2016). Commercial

papers can be sold by Zylla for raising short term finance as it is having a strong reputation
within overall industry or in entire market.
Long term sources
Bank loan- It is referred as the full-fledged long run loan from bank which allows them
in meeting their long run needs and funding the growth strategy that is acquisition. A large
amount of Loan can be borrowed by Zylla from bank for long term at a fixed rate of interest. The
loan amount would be repaid in form of installments along with an interest amount.
Issue of debentures & equity- Zylla can raise large amount of funds through issuing
shares and the debentures to the general public. Equity is represented as the ownership capital of
an organization on through which the shareholders receives dividend in case the company earns
profits. By issuing shares, Zylla need not to pay fixed amount or charges and not any legal
obligation in paying dividends (Restrepo, Cardona‐Sosa and Strahan, 2019). With longer equity
base, an ability of Zylla would increase in raising the debt finance on the favorable terms. This in
turn increases creditworthiness of an enterprise in overall market. Moreover, debenture is
considered as document of an acknowledgement of the debt with common seal of an enterprise.
It contains terms and the conditions of the loan, interest payments, loan redemption and the
security by the firm. The holder of the debentures is stated as the creditors of company and gets a
fixed amount of interest by the company. However, by issuing debenture the ownership of the
company does not get diluted.
2. Evaluation of several investment appraisal tools and recommending feasibility or viability of
acquisition
Net present value
Years Profits Discounting factor
Discounte
d cash
inflows
1 55230 0.97 53621.36
2 70045 0.94 66024.1
3 88375 0.92 80875.6
4 79870 0.89 70963.5
5 57555 0.86 49647.4
Total of discounted cash inflows 321132.0
less: Initial investment 3000

NPV
sum of discounted cash inflows-
initial outlay 318132.0
Internal rate of return
Years
Cash
inflows
0 -150000
1
53621.3
6
2
66024.1
3
3
80875.6
4
4
70963.4
6
5
49647.4
5
IRR 32%
Accounting rate return
Years Cash inflows
1 53621.35922
2 66024.13
3 80875.64
4 70963.46
5 49647.45
sum of annual profits 321132.04
Years 5
Average annual
profits Sum of annual profits/No. of years 64226.40859
Initial investment 150000
Accounting rate of
return
Average annual profits/Initial
investment 43%
Payback period
Years
Cash
inflows
Cumulative cash
inflows
1 53621.3 53621.35922

6
2
66024.1
3 119645.49
3
80875.6
4 200521.13
4
70963.4
6 271484.59
5
49647.4
5 321132.04
Initial investment 150000
Year 2
0.4
2.4
Payback period
2 years and 4
months
Interpretation- From the above analysis it has been indicated that the net present value
for proposed or prospective new ferry business resulted as pound 318132 which is seen as the
positive value and in turn reflects that the project would be profitable for Zylla. Further, Internal
rate of return accounted as 32% which is counted as the greater value or percentage of the
earnings that the proposal will generate in the future (Alkaraan, 2017). This clearly states that
acquiring Ferry seems as profitable for Zylla as it would be earning higher return or profits on
investment. Accounting rate of return reflects an average profit that the company will gain on its
initial investment. Therefore, as ARR of this proposal equated to 43% which means that Zylla by
investing in this project will gain large amount of return. Moreover, the payback period
evaluated as 2 years and 4 months which means that by choosing this proposal, Zylla would
recover its initial cost within 2 years and 4 months of the period. This time period is considered
as very short which in turn indicates that the project is viable and feasible for the firm.
CONCLUSION
From the above report, it has been summarized that the long and the short term sources
helps an entity in raising the large funds for acquiring the company and meeting its daily
expenses or running the operations smoothly. Investment appraisal technique enables Zylla in
assessing the investment or proposal that relates to acquiring Ferry in a suitable manner. The

capital budgeting tool helps the firm in analyzing the profitability, viability, desirability and the
feasibility of an investment in effective manner.

REFERENCES
Books and journal
Alkaraan, F., 2017. Strategic investment appraisal: multidisciplinary perspectives. Advances in
Mergers and Acquisitions. p.67.
Cortina, J. J., Didier, T. and Schmukler, S. L., 2018. Corporate debt maturity in developing
countries: Sources of long and short‐termism. The World Economy. 41(12). pp.3288-3316.
Khmel, V. and Zhao, S., 2016. Arrangement of financing for highway infrastructure projects
under the conditions of Public–Private Partnership. IAtSS Research. 39(2). pp.138-145.
Restrepo, F., Cardona‐Sosa, L. and Strahan, P. E., 2019. Funding Liquidity without Banks:
Evidence from a Shock to the Cost of Very Short‐Term Debt. The Journal of Finance. 74(6).
pp.2875-2914.