Zylla Limited: Investment Appraisal, Financial Sources, Ferry Project

This report assesses Zylla Limited's investment in a new ferry, examining short-term and long-term funding sources such as share issues, debentures, bank loans, and trade credit. It evaluates the project's viability using investment appraisal techniques, including the payback period method (calculated at 2 years and 2.7 months), net present value method (NPV of €209,973.4), and accounting rate of return (ARR of 1.33%). The analysis concludes that the ferry project is beneficial for Zylla, with a positive NPV and a payback period within an acceptable timeframe, making it a worthwhile investment given the company's 10% cost of capital. The report recommends that Zylla proceed with the project based on its financial merits.

Business Scenario for
individual report

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
I. Short and long term sources of finance to acquire the funds for ferry and maintaining the
working capital needs of the business.........................................................................................3
II. Evaluation of the different investment appraisal techniques following the recommendation
about the viability of the project.................................................................................................4
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Business investment is bring considered at that amount of money which is being invested
by the business in different growth plans for the development of the business(Pizzola, 2018). Th
following report is based on the Zylla limited which operate the number of ferries. With the help
of these ferries they help the common people to cross the river and goods. The respective
company is going to expand their business by buying a new Ferry in order to fulfil the demand.
The following report is bifurcate into two sections in which first sections help the board of
directors by providing information related to the long and short term source of raising the fund
and in the second section of this report different tools of investment appraisal has been checked
and find out whether the investment done by the company is viable or not.
TASK
I. Short and long term sources of finance to acquire the funds for ferry and maintaining the
working capital needs of the business.
Sources of finance is being considered as one of the most important part of the company
through which organisation plan their capital in the contributing in the different task. The fund
which are raised by the company help them to operate the different functions in a very effective
manner (Keag, Norman and Stock, 2018). There are different types of sources through which the
capital requirement of the Zylla limited can be fulfilled. The sources of funds has been discussed
below :-
Long term sources of raising the fund :-
 Issues of Shares :- this is being considered as the most common method of raising the
fund form the market. In this methods the organisation can raise the capital by providing
them shares of the company. The capital which is raised by issuing the share is durable in
nature which means that organisation can keep it until its liquidation.
 Debentures :- this is that mode of mode of method through which an organisation can
effectively manage their long term reserves. Debenture are basically that type of credit in
which the company have to pay the interest whether they earn profit or not and along
with this the organisation have to pay back the credit amount within the indicated time
frame. For the acquisition of Ferry this is very well for the company.

Short term source of raising the fund :-
 Bank Loan :- this also being considered as the most flexible method of raising the fund
form the market. The Zylla limited can take the advance from the bank for managing its
functions. The amount which is being provided by the bank to the company have on
some interest rate and company have to pay the interest according to the decided rate
(Vardakas and et. al., 2018). Along with this the respective company have to repay the
allotted amount within the set time frame.
 Trade Credit :- the respective company can also raise the fund from their supplier by
requesting them. The supplier can provide the fund for the investment of the Ferry done
by the company. By doing this the cash which is going to be paid by the company to
their supplier can be utilized by them.
II. Evaluation of the different investment appraisal techniques following the
recommendation about the viability of the project.
Investment Appraisal Techniques has been used by the organisation in order to appraise the
performance of the new project. The first thing which came in the mind of investor or in
company is that while investing in the project is that whether the project is profitable or not and
how much profit can be generated by the investor from this project(Pawlak and Zarzecki, 2020) .
For assisting the management and investors different types of investment appraisal techniques
has been used. These are Net Present Value Method, Internal Rate of Return, Payback Period
method, Accounting rate of return in context to the Ferry which have been discussed below :-
Payback Period method :-
In this method the company is going to identify the rate at which the new investment is going to
recover the initial investment cost. This method tell the time which is being taken by the business
in recovering the initial cost of investment. The payback period of Ferry is being calculated
below :-
YEAR CASH FLOW
(in Euro)
CUMULATIVE CASH
FLOW ( in Euro)
0 (150000) (150000)

1 55230 (94770)
2 70045 (24725)
3 88375 63650
4 79870 143520
5 102555 246075
Note :- the sale amount of the decommissioned ferry which is of 45000 has been included in the
cash flow of the year in which it is being sold.
Payback Period = n-1 + cumulative cash flow in n-1 year / Cash inflow during the nth year
n=year in which cumulative cash flow turned positive
Payback Period = 2 + 24725 / 88375
= 2 + 0.27
= 2 Years + 2.7 Months
2 years and 2.7 Months is the payback period of the Ferry.
Net Present Value method :-
This method are used by the organisation and the investor in order to measure the profitability
from the project. In this method the present value of all the future cash flow generated by a
specific project has been determined(Alkaraan, 2020).. The NPV method in context to Ferry has
been calculated below :-
Cash Flows Present Value factor Present Value Cash Flows
55230 0.'971 53628.33
70045 0.'943 66052.43
88375 0.'915 80863.12
79870 0.'888 70924.56
102555 0.'863 88504.96
Total amount 359973.4
Note :- the sale amount of the decommissioned ferry which is of 45000 has been included in the
cash flow of the year in which it is being sold.

Net Present Value = Total cash flow amount – Initial Investment in Ferry
= 359973.4 – 150000
= 209973.4
209973.4 Euro is the NPV of Ferry.
Accounting Rate of Return :-
This method help the organisation and investor to measure the amount of return which is being
earned from a project. Following is the calculation of ARR for Ferry :-
ARR = Average Cash Inflow / Average Investment
((Total cash flow/5)/ Average Investment))
= {( 55230 + 70045 + 88375 + 79870 + 57555) / 5 } / [(150000 – 45000) / 2]
= (351075 / 5) / (105000 / 2)
= 70215 / 52500
= 1.33 %
from the above calculation it has been observed that this project is very beneficial for the Zylla.
The cost of capital of the business is 10 % and the company is get back its return in 2-3 years.
The company is going to earn a profit around 209973.4 euro on its investment of £ 150000
which is very good.
CONCLUSION
From the above report it has been concluded that different types of sources are available
in the market for fulfilling the requirement of the fund in the company. It is very important for
the company to effectively understand the investment prospects as it has been provided with
different rate of return. The following report concluded about the short and long term source of
finance and different appraisal techniques which shows the profitability of the Ferry project.

REFERENCES
Books and Journals
Pizzola, B., 2018. Business regulation and business investment: Evidence from US
manufacturing 1970–2009. Journal of Regulatory Economics, 53(3), pp.243-255.
Keag, O.E., Norman, J.E. and Stock, S.J., 2018. Long-term risks and benefits associated with
cesarean delivery for mother, baby, and subsequent pregnancies: Systematic review and
meta-analysis. PLoS medicine, 15(1), p.e1002494.
Vardakas, K.Z and et. al., 2018. Prolonged versus short-term intravenous infusion of
antipseudomonal β-lactams for patients with sepsis: a systematic review and meta-
analysis of randomised trials. The Lancet infectious diseases, 18(1), pp.108-120.
Pawlak, M. and Zarzecki, D., 2020. Investment Appraisal Practice in the European Union
Countries. European Research Studies, 23(2), pp.687-699.
Alkaraan, F., 2020. Strategic investment decision-making practices in large manufacturing
companies: A role for emergent analysis techniques?. Meditari Accountancy Research.