Zylla Ltd Ferry Purchase: Financial Evaluation and Funding Options

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Introduction to Business Studies Task 4
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Table of Contents
Introduction:....................................................................................................................................3
(a):....................................................................................................................................................4
(b):....................................................................................................................................................7
Conclusion:......................................................................................................................................8
References:......................................................................................................................................9
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Introduction:
Zylla Ltd is the selected company for this report which is engaged in the operations of ferries in a
specific areatoprovide river crossing services. Currently,the company is planning to buy some
new ferries so that benefit from the enhanced demand can be obtained. This report will evaluate
the different financial aspects of this event and describe the suitability of the proposed event for
the company. Starting era of this report will centre the focus on different sources of finance that
can be used by Zylla Ltd to finance the buying of new ferries. Another era of this report will
apply some investment appraisal techniquesto evaluate the suitability of new purchasing plan for
Zylla’s financial stability.
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(a):
Funding is one of the most crucial matters of business that should be handled carefully to ensure
that current financial decisions and activities will not lead to creatingfinancial problems in future.
Zylla Ltd is performing and thinking to borrow funds from different sources to finance the ferry
purchase event. Following are some fund sources that can be adopted by the company:
Short-term financing options:
 Bank overdraft:
It is a popular source of financing that can be used by Zylla Ltd to borrow funds for a small time
period (Kerr, et. al., 2015). Under this option, the bank allows borrowing of a specific amount
that can be borrowed by the company from a bank account at any time. An evaluation of this
option is as below:
Pros Cons
 It is a need-based loan in which interest
costs is needed to be paid when the amount
is withdrawn from the bank.
 It can be arranged very easily.
 Sometimes it becomesa reason for the
excessive financing cost
 Generally, it comes with a higher interest
rate.
 Bank Loans:
To complete the working capital requirements, Zylla ltd can take bank loans for a short-term
period. This option provides the facility of repayment in small instalments. An evaluation of this
option is as below:
Pros Cons
 It comes with easy instalment option.
 Interest paid to the bank can be claimed as
a deductible expense.
 Security is required to pledge to take a
bank loan.
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 it is expensive for small businesses Trade financing:
It is nothing more than the efficient management of creditors and debtors to increase the liquidity
within the organisation. It can be done by applying systematic procedures to reduce the debtor’s
collection period and increase the creditor’s paymenttimeframe.
Pros Cons
 It is a cost-free financing option.
 There is no security required for trade
financing.
 Sometimes the reduction in credit period
creates client loss.
 Excessive time taking in payment to
supplier reduce credit availability.
Long term financing sources:
Equity funding:
Financing through equality is one of the most popular sources of finance that is utilised by the
corporate companies to financecapital projects (Kerr, et. al., 2015). Under this option, Zylla Ltd
can issue new shares to public and existing shareholders to gather sufficient amounts for
financing the ferry purchase. A comparative analysis of equity financing is providedbelow;
Pros Limitations
 Repayment of gathered funds is not
required.
 There is no fixed liability of payment until
the company have sufficient profits to
distribute dividend.
 Listing at the stock market is required for
issuing shares which is an expensive and
complex process.
 it creates diversification of ownership.
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Debt financing:
Under the debt financing, Zylla Ltd can borrow funds from different financial institutions and
banks as term-loan. It ensures availability of large funds for along period along with the facility
of repayment in small instalments. Comparative analysis of this option is as below:
Pros Limitations
 The ownership structure of Zylla will not
be affected bydebt financing.
 Deduction of interest payment is allowed
under taxation rules (Klačmer Čalopa, et.
al., 2014).
 It comes with fixed payment liability and
increases the leverage.
 Additional cost arises on the failure of
timely repayment.
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(b):
A popular investment appraisal technique that is used by the finance managers to evaluate the
suitability of investment options, business projections and managerial decisions, is known as net
present value (NPV) model. Under this model, the present value of all cash inflows is compared
to the present value of cash outflows to find the profitability of a project (Cleartax, 2018).
Concept of NPV considers the impact of “Time value of money” on profits and provides
assistance in efficient decision-making (Kerr, et. al., 2015).
Particulars Amount
Discounting
factor P.V.
Initial cost of Ferry -150000 1 -150000
Less: Inflows
from operations 1 55230 0.971 53621.36
from operations 2 70045 0.943 66024.13
from operations 3 88375 0.915 80875.64
from operations 4 79870 0.888 70963.46
from operations 5 57555 0.863 49647.45
from salvage sale 5 45000 0.863 38817.40
Present value 209949.44
From the above discussion, it has been identified that considered project will create significant
returns for Zylla Ltd so the project should be accepted immediately.
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Conclusion:
This report is based on the concepts of financing and project evaluation and, prepared by taking
Zylla Ltd as an example. The report is created in two different sections, and each section is
explaining the different concept of financial management. In the 1st section, different sources of
funds that are available to Zylla Ltd for financing the ferry purchase and satisfy the working
capital needs have been evaluated. This evaluation is proving that equity financing is one of the
most suitable sources of financingwhich eliminates the burden of fixed interest payment. In the
second part, a capital project of ferry purchase has been evaluated to find the suitability of the
project for the company. From the valuation, it is noted that Zylla Ltd is performing well and
successful completion of this project will create significant returns for the company.
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References:
 Cleartax, 2018. NPV (Net Present Value ) - Formula, Meaning & Calculator. [online]
Cleartax.in. Available at: https://cleartax.in/s/npv-net-present-value [Accessed 24 Apr.
2019].
 Kerr, W.R. and Nanda, R., 2015. Financing innovation. Annual Review of Financial
Economics, 7, pp.445-462.
 Klačmer Čalopa, M., Horvat, J. and Lalić, M., 2014. Analysis of financing sources for start-
up companies. Management: journal of contemporary management issues, 19(2), pp.19-44.
 Woodruff, J.,2019. The Advantages and Disadvantages of Debt and Equity Financing.
[online] Smallbusiness.chron.com. Available at: https://smallbusiness.chron.com/advantages-
disadvantages-debt-equity-financing-55504.html [Accessed 24 Apr. 2019].
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