Investment Appraisal and Funding Sources for Zylla Limited's Ferry

This report examines Zylla Limited's plan to acquire a new ferry to expand its services. It analyzes both short-term and long-term funding sources, including customer advances, short-term loans, retained earnings, and debentures, to meet working capital needs and facilitate the purchase. The report then evaluates various investment appraisal techniques, specifically Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period, to determine the viability of the investment. Calculations for each technique are provided, leading to a recommendation that the company should invest in the new ferry due to positive NPV and IRR results, along with a reasonable payback period. The conclusion emphasizes the importance of investment appraisal techniques in making informed decisions about business expansion.

Business Scenario
for Individual
Report

INTRODUCTION
Zylla Limited provide different services such as river crossing to the individuals, goods
etc. and here they operates huge various ferries. Company not only helps the people to cross river
but they move the vehicles, goods etc. Zylla wanted to expand their operations so management
need to make decisions to purchase a new ferry for the purpose of maximising the market needs
(Carfora and Scandurra, 2019). In order to expand, company required fund to meet working
capital requirement. This assessment cover the various elements like long as well as short term
sources of funds to acquire new ferry and this process will be done after evaluating various
techniques of investment appraisal by using available information.
MAIN BODY
1. Long and short term resources for acquiring funding for buy a new ferry and fulfilling
working capital needs
Zylla limited required short term or long term source to arrange finance to buy a new
ferry and further they have to ensure that company meet their working capital (WC) needs. These
sources of funds are as follow:
Short term sources of finance: It is the need of money which company required to
perform their daily basis activities. Generally, short term sources are those which company have
to repay within one year. Some of short term finances are mentioned below that help the Zylla
Limited to acquire ferry or meet working capital requirement.
 Customer's advanced: Some times it happened that businessman make advanced
payment from their customers in order to maintain liquidity in the company. But they ask
when order is very large in quality, than consumers are ready to make advanced payment.
This source also helps the Zylla Limited to fulfil working capital requirement.
 Short term loan: Company take loan from banks and repay after specific time period but
it has to be less than one year (Lim and Kim, 2015). Zylla limited use this sources of
finance to meet the working capital need and help the management to perform daily basis
activities.
Long term sources of finance: Such type of resources which help organizations to
acquire funds to meet business requirement. Generally it is for more than one year because they
borrow high amount which take enough time to repay. Zylla use various long term source to

acquire ferry for the exoneration of their business operations. Some of the source mentioned
below:
Retained earning: It is the part of profit which retained by the Zylla company for future
events. So by using this source, company acquire a new ferry as well as meet working capital
needs which help the management to support in the expansion of business.
Debentures: Zylla company can generate money through issuing debentures in the
money market. It further beneficial for the acquisition of new ferry as well as fulfil the need of
working capital.
By using above mention short term as well as long terms sources of finance help the
business in their expansion or make them able to acquire new ferry to maximise demand. Along
with this, perform daily basis activities with the help of fulfilling working capital needs.
2. Evaluate different types of investment appraisal techniques and recommended the viability of
acquisition and that is based on suitable appraisal techniques\
By using this techniques, management of Zylla Limited make decision that company
need to invest in it or not.
Net Present Value: It is one of the effective method of investment appraisal techniques
which help the business to understand that, investment in the particular project is required to
done or not. Cash flow based on the time interval between the present value or future cash flow
of the project. Zylla Limited use this method to ensure that investment in the ferry is beneficial
or not. It's formula and calculation are as follow:
Formula:
NPV = Total Cash inflow / Cost of new project
Internal Rate of Return: It is the another technique of investment appraisal which
evaluate the return on particular investment which made by the company (Mishra and Rai, 2014).
This calculation exclude the external factors which can differ the results such as risk free rate,
cost of capital, inflation and other financial risk. This method also called discounted cash flow
rate of return and it is used by the Zylla Limited to ensure that acquisition of new ferry is
profitable for the business.
Detailed calculations of NPV and IRR are performed below:

Payback Period: It is the time period in which company can recover their invested
amount and further ensure that its period is lower that is more beneficial as well as profitable
(Kulakov and Kastro, 2017). Zylla Limited use this method to measure that, in how much time
business recover their cost for the acquisition of new ferry. It calculation mention below:
Formula:
Payback Period = Completed year + [ Cost of new project – Cumulative cash inflow of
the year] / Cash inflow of upcoming year
Pay back period = 2 + (150000 – 125275) / 88375
= 2 + 2.28
= 4.28 years.
With the help of above calculations it has been evaluated that NPV or IRR of this
investment is quit high that is beneficial as well as profitable for the Zylla Limited. So, it is
recommended that company should investment into new ferry.

CONCLUSION
From the above discussion it has been analysed that, before making any decision
regarding expansion of business operations. Company need to evaluate that it is profitable in the
future or not and it will be possible with the help of different investment appraisal techniques
such as Net Present Value, Payback Period or Internal Rate of Return.

REFERENCES
Books & Journals
Carfora, A. and Scandurra, G., 2019. The impact of climate funds on economic growth and their
role in substituting fossil energy sources. Energy policy. 129. pp.182-192.
Lim, S. and Kim, Y., 2015. How to design public venture capital funds: Empirical evidence from
South Korea. Journal of Small Business Management. 53(4). pp.843-867.
Mishra, P. K. and Rai, S. C., 2014. A cost–benefit analysis of indigenous soil and water
conservation measures in Sikkim Himalaya, India. Mountain Research and
Development. 34(1). pp.27-35.
Kulakov, N. Y. and Kastro, A. N. B., 2017. New applications of the IRR Method in the
Evaluation of investment Projects. In IIE Annual Conference. Proceedings (pp. 464-
469). Institute of Industrial and Systems Engineers (IISE).