Zylla Ltd: Assessing Financial Strategies for Ferry Procurement

This report assesses the financial aspects of Zylla Limited's ferry procurement project, focusing on identifying suitable sources of finance for both the ferry acquisition and the necessary working capital. It evaluates various capital budgeting techniques, including payback period, accounting rate of return (ARR), and net present value (NPV), to determine the project's feasibility and profitability. The analysis considers both short-term and long-term financing options such as share issuance, debentures, bank loans, and trade credits. The findings suggest that the investment in the ferry is financially viable, with a payback period of 2.4 years and a positive net present value of £189,363.415, indicating a strong potential for profit generation. The report concludes that Zylla Limited can proceed with the project, capitalizing on the opportunity to enhance profitability and operational efficiency.

Business Scenario for
Individual Report

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
TASK 4............................................................................................................................................3
Determine the sources of finance required by the company for the procurement of Ferry and
working capital requirements......................................................................................................3
Asses different type of techniques for procurement and operations of ferry..............................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Business use different sources in order to finance such as borrowings, debentures, retained
earnings, working capital and shares. These funds are used by used business operations to know
the area of business. These are taken on the basis of time period and ownership. Capital
budgeting technique is used to determine the feasibility and profitability of the project. In the
following report it includes long term and short term finance to fulfil the demand of the business
operations of the Zylla limited (Barbier and et.al., 2021).
MAIN BODY
TASK 4
Determine the sources of finance required by the company for the procurement of Ferry and
working capital requirements.
A business can not survive without money, for smooth functioning of a money required. Sources
of funds refers to the modes through which money arranged for carrying out business operation
and to increase capital. Some sources which help in managing operational working capital
requirements of Zylla limited are as follows:
Need of long term capital for Procurement of ferry:
 Share issuing: A company can raise Equity fund by issuing shares in the public. Share
are the permanent source of finance until firm’s liquidation. A company can raise large
capital in small parts through shares.
 Debentures: Debentures are long term loans which is taken from people. Company has to
pay regular interest to the debenture holders on the behalf of such amount. Such amount
is used for miscellaneous expenses, working capital operations and also used for
purchasing ferry (Falk and et.al., 2019).
Need of short term capital to meet working capital requirement:
 Bank Loan: Bank loans are the short term liability it can be mature in one and more than
one year. Zylla limited can apply for a loan from bank to fulfil needs of their working
capital. The company has to pay certain amount of interest and return back loan amount
in the pre-determined period.

 Trade credit: Zylla limited can also procure funds for working capital from their goods
traders. Trade credits is a part of commercial financing which allows customer to take
goods from supplier and pay for it in futures pre-determined period.
Asses different type of techniques for procurement and operations of ferry.
Interest amount to be paid by company on arranged fund for purchase ferry = 150000*3/100 =
£4500
Payback period: Payback period refers the time taken by the project to recover its cost. Shorter
payback period is favourable for company to maintain their firm’s liquidity. In simple words
payback period is the time taken by any project to reach its break-even point. Break-even is the
situation of no profit no loss (Pan, G. and et.al., 2020).
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
Payback time period = Initial investment / Cash flow per year
= 2 + 33725 / 83875
= 2 + 0.4
= 2.4 years
Accounting rate of return: Accounting rate of return is used to calculate return for multiple
projects. In simple words accounting rate of return is the method of calculating return on an

investment for a specific time period. Results of accounting rate of return expressed in
percentage. Calculating the amount of returns
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: Net present value is the method of calculating difference between
future cash inflows and outflows of a specific time period. Company can calculate net present
value of any project any time, when any need occurs. It is a very important and useful method
investigate any investment.
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 339363.42
NPV = 339363.415 – 150000 = £ 189363.415
As per the above calculations, if Zylla made investment in ferry, it will very much beneficial for
company. Company's present cost of capital is about 10% and the average rate of return is
around 1%. The payback period of the company's is between 2-3 year, which shows firms strong

control over liquidity. Net present value is able to attract many investments. If Zylla limited
made investment of £ 150000 it can earn £ 189363.415 profit. It is very big opportunity to earn
profits (Pinto, 2020).
CONCLUSION
From the above report it can be concluded that the investment made by the Zylla limited is
profitable and thus the company can carry on with the project. The return and risk associated
with the project is appreciable. It ascertains the profitability of the project by calculating the net
present value and payback period of the project. The company can purchase the ferry, it will be
profitable to operate the ferry and earn profit from its operation.

REFERENCES
Books and Journals
Barbier, E.B. and et.al., 2021. The economics of the tropical timber trade. Routledge.
Falk, T. and et.al., 2019. U-Net: deep learning for cell counting, detection, and
morphometry. Nature methods. 16(1). pp.67-70.
Pan, G. and et.al., 2020. Automatic sewer pipe defect semantic segmentation based on improved
U-Net. Automation in Construction. 119. p.103383.
Pinto, J.E., 2020. Equity asset valuation. John Wiley & Sons.
Zhang, J. and et.al., 2021. Investigating the utilization of polyethylene pipe for automated
hauling system in set net fishery. Ocean Engineering. 233. p.109192.
Zhao, Y.K. and et.al., 2018. Experimental study on the net efficiency of an Organic Rankine
Cycle with single screw expander in different seasons. Energy. 165. pp.769-775.
et.al.,