Finance Report: Funding and Investment Appraisal for Ferry Acquisition

This finance report explores the financial aspects of a company's plan to acquire a new ferry to expand its river crossing services. The report begins by categorizing and describing both short-term and long-term sources of finance, including bank credit, commercial paper, retained earnings, and loans from financial institutions, suitable for funding the acquisition and working capital needs. Subsequently, the report evaluates various investment appraisal techniques, such as the payback period method, accounting rate of return, net present value (NPV), and internal rate of return (IRR), to assess the viability of the ferry acquisition. The NPV method is then applied, and the resulting positive NPV value of $171,138.41 suggests the acquisition is financially beneficial, leading to the conclusion that the company should proceed with the investment. The report concludes by emphasizing the importance of financial planning and investment appraisal in business decision-making and references several books and journals to support the analysis.

FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Short term and long term sources of finance to fund the acquisition of the ferry and for the
company’s working capital needs................................................................................................3
2. An evaluation of various investment appraisal techniques and recommending the viability
of the acquisition and operation of the new ferry based on one suitable investment appraisal
technique......................................................................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Finance is key for any type of business entity in order to conduct different activities and
operations (Romani and Stern, 2016). Companies acquire funds from various kinds of sources.
The project report is based on a company which operates in providing river crossing services
through ferries. Company is planning to expand its business and planning to acquire new ferry.
The report covers detailed information regards to sources of finance. As well as evaluation of
different investment appraisal techniques.
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.
There are different kinds of sources of funds which are needed by business entities in
order to acquire funds. Mainly, these source of funds can be categorised into two parts which are
as follows:
(i). Short term source of funds- These are type of source of funds which are acquired by business
entities for short time period less then one year. Basically, short term funds are needed in order
to fulfil working capital requirement. Such as Zylla Limited company can acquire funds from
below mentioned short term funds:
 Bank credit- Commercial banks provide short term funds to companies that is known as
bank credit. This can be provided by banks in many ways such as:
* Loans- This is granted to companies against security of assets. By help of it, this become easier
for business entities to acquire funds at lower cost. Such as Zylla limited company can acquire
short term loan for quick term and can fulfil own working capital requirement.
* Overdraft- It is type of facility that is provided by banks to customer to withdraw funds in
excess balance of bank account. In Zylla limited company, they can get short term funds to make
payment of day to day activities after acquiring ferry.
 Commercial paper- It is a type of short term financing tool which is used by companies
with higher credit rating to acquire funds from market (Jerzmanowski, 2017). This is
suitable for those business entities which have a better reputation in market. Like in the

above company, they can raise short term funds by this alternative for making payment of
short term debts.
(ii). Long term source of funds- These are type of source of funds which are acquired by business
entities for long time period more then one year. Basically, long term funds are needed in order
to do large expenses. Such as Zylla Limited company can acquire funds from below mentioned
long term funds:
 Retained earnings- It is a type of source of fund which is generated internally. This
becomes possible when companies do not distribute whole profits to shareholders
(Prizzon, Greenhill and Mustapha, 2017). Such as in the above company they can
produce retained earnings and it may help in order to fulfil long term funds need.
 Loan from financial institutions- This is a main source of long term funds in which
companies can take loan from major financial institutions. Zylla limited company can get
long term financial assistance by taking long period loan from banks.
2. An evaluation of various investment appraisal techniques and recommending the viability of
the acquisition and operation of the new ferry based on one suitable investment appraisal
technique.
There are vital range of investment appraisal techniques which are being used by
companies in order to make proper evaluation of any project (Throsby, 2016). Herein, below
some types of techniques of investment appraisal are mentioned such as:
 Payback period method- It can be defined as a technique in that estimated time period is
calculated which may occur in order to recover debt amount. There is a particular
formula to compute payback period which is as follows:
Payback period = Initial investment / cash flow
or

 Accounting rate of return- It is type of technique which is used to measure expected
amount of profit from an investment. This is calculated by below mentioned formula that
is as:
ARR= (Average annual profit after tax / initial investment) x 100
 Net present value- This is one of the most using method of investment appraisal
(Alkaraan, 2015). Basically, net present value is addition of discounted cash in & out
flows regards to project. It is computed by below mentioned formula:
NPV= Discounted cash flow- initial investment
 Internal rate of return- This is defined as an discounting rate on which company can
generate profit or may face loss. It is computed by below mentioned formula:
.
Evaluation of viability of ferry:
Initial investment = 150000
Year Cash flow PV factor Discounted cash flow
1 55230 0.971 53628.33
2 70045 0.943 66052.44
3 88375 0.915 80863.13
4 79870 0.888 70924.56
5 57555 0.863 49669.97
321138.41
NPV = 321138.41-150000
= 171138.41

Analysis- In accordance of net present value of ferry, it can be find out that its current value is of
171138.41 which shows that this may be beneficial for above company if they acquire it. This is
so because produced outcome is positive. Thus, they should acquire the ferry.
CONCLUSION
On the basis of above project report, it has been concluded that financial need can be
fulfilled by help of different sources of funds. Report concludes about both short and long term
source of finance such as commercial paper, retained earnings and many more. In addition,
further part of report concludes about various method of investment appraisal such as payback
period, net present value method etc. In the end, this can be articulated that acquisition of ferry
will be beneficial for above company.

REFERENCES
Books and journal:
Romani, M. and Stern, N., 2016. Sources of fi nance for climate action: principles and options for
implementation mechanisms in this decade. In International climate finance. (pp. 135-
152). Routledge.
Jerzmanowski, M., 2017. Finance and sources of growth: evidence from the US states. Journal of
Economic Growth. 22(1). pp.97-122.
Prizzon, A., Greenhill, R. and Mustapha, S., 2017. An ‘age of choice’for external development
finance? Evidence from country case studies. Development Policy Review. 35. pp.O29-
O45.
Alkaraan, F., 2015. Strategic investment decision-making perspectives. In Advances in mergers
and acquisitions. (pp. 53-66). Emerald Group Publishing Limited.
Throsby, D., 2016. Investment in urban heritage conservation in developing countries: Concepts,
methods and data. City, Culture and Society. 7(2). pp.81-86.