Report on Finance for Zylla Limited's Ferry Expansion Project

This report, prepared for Zylla Limited, a ferry service provider, addresses the company's expansion plans through the acquisition of a new ferry. The report begins by examining both short-term (trade credit, factoring) and long-term (equity shares, bonds) sources of finance to fund the acquisition and working capital needs. It then evaluates various investment appraisal techniques including Payback Period, Accounting Rate of Return, Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index, and Discounted Payback Period. Calculations are provided for Payback Period, Average Rate of Return, NPV, and IRR. The report recommends investing in the new ferry based on a positive NPV (£171,138). The report concludes by summarizing the funding options and capital budgeting methods, recommending the ferry acquisition based on the NPV analysis.

Business Scenario for
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Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
1. Short and long term sources of funds serving the needs of the Zylla Limited........................3
2. Evaluating various investment appraisal techniques and recommending viability of
acquiring and operating new ferry...............................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1

INTRODUCTION
Zylla Limited is a company operating in business of ferries, providing services of river
crossing to people, vehicles and goods across a river. The business is looking forward to expand
its operations meeting the increase in the demand. For the expansion purpose the company is
assessing the investment plan regarding purchase of new ferry. The report will highlight the
different short and long term sources of finance. Various investment appraisal techniques are
evaluated in the report. Report recommends on the viability of the investment technique.
MAIN BODY
1. Short and long term sources of funds serving the needs of the Zylla Limited
Short Term Sources of Fund: Trade Credit: This is the easiest and important form of short term source of finance. The tool
is commonly used by the businesses in their growing stage. Trade credit is an arrangement
between the company with its suppliers in which they agree to give the company goods
without asking them to pay in cash or by cheque instantly (Wu, Zhang and Baron, 2019). This
helps the in reducing and managing its immediate working capital requirement. Factoring Services: The company can exchange the account receivables in holds with other
company to get immediate cash meeting its working capital requirements (Arkhangelskaya and
Salin, 2021).
Long Term Sources of Fund: Equity Shares: These are the source of long term finance for the company. Through this
source of raising finance company can sell the part of the ownership with the general public
in exchange of money (Dempsey, 2019). Issuing equity shares by the company gives voting
rights, right to share in profits and claim on the assets of the company. Bonds: This is a type of debt. Company to fulfil its requirements of funds for acquisition of
new ferry can issue bonds. The investors who are willing to invest in the business will
purchase the bonds by lending money to the company for a specified period of time
(Sartzetakis, 2021). In return company will have to pay agreed interest amount over the entire
life span of the bonds along with repayment of the principal amount.

2. Evaluating various investment appraisal techniques and recommending viability of acquiring
and operating new ferry
Investment Appraisal Techniques Payback Period: This technique gives the period duration that the particular investment will
take to return the initial investment value.
Advantage: It is the easiest of all the other techniques in terms of computation and
understanding.
Disadvantage: Time value of money is not considered. All the cash inflows occurring
after the payback period gets ignored (Shimbar and Ebrahimi, 2020). Accounting Rate Of Return: It is that rate at which a specific investment option will give
returns against the initial invested amount.
Advantage: Profits generating in the entire life span of an investment are considered.
Simple to calculate and understand.
Disadvantage: The time value of money gets ignored also there is no agreed accounting
method regarding the calculation of ARR. Net Present Value: Method is used for calculating the present value of the investment returns
in the future.
Advantage: This technique of money is taken into account. Comparison between
different investment alternatives is made easier.
Disadvantage: Difficult concept to understand. The calculations are accurate only when
the cost of capital considered is correct. Internal Rate of Return: The technique gives the rate at which the present value of future
returns will be zero.
Advantage: Gives the resultant value in percentage form making it easier to understand.
Time value of money is considered in the calculation of IRR.
Disadvantage: The risks and uncertainties associated with the investment project are not
included. The cost of capital is required in calculation of internal rate of return (Sunchalin and
et.al., 2019). Profitability Index: It is a kind of capital budgeting technique used to decide the feasibility
of all the investment alternative. Present values of inflows are divided by the present values
of the outflows.

Advantage: The technique assists in choosing the investment option that is best taking
into account the budget available.
Disadvantage: Sunk cost is not considered. The required rate of return computation is
difficult. The projections are based on optimistic approach. Discounted Payback period: The particular technique is advanced version of payback period
technique with some modifications. Break even time is calculated with this technique
(Crouzet and Eberly, 2018).
Advantage: The time value of money and the timing of the inflows are taken into
account.
Disadvantage: The cash flows are ignored that generates after the payback period.
CALCULATIONS:
Computation of Payback period
Year Cash inflows Cumulative cash inflows
1 55230 55230
2 70045 125275
3 88375 213650
4 79870 293520
5 57555 351075
Initial investment 150000
Payback period 2
0.4
Payback period 2 year and 4 months
Computation of Average rate of return
Year Cash inflows
1 55230
2 70045
3 88375
4 79870
5 57555
Average profit or cash inflow 70215
Average initial investment 195000

average initial investment [(initial investment + scrap value) / 2]
ARR 36%
Computation of NPV
Year Cash inflows PV factor
Discounted cash
inflows
1 55230 0.971 53628.33
2 70045 0.943 66052
3 88375 0.915 80863
4 79870 0.888 70925
5 57555 0.863 49670
Total discounted cash inflow 321138
Initial investment 150000
NPV (Total discounted cash
inflows - initial investment) 171138
Computation of IRR
Year Cash inflows
0 -150000
1 55230
2 70045
3 88375
4 79870
5 57555
Internal rate of return (IRR) 36%
Recommending: Based on the NPV technique of investment appraisal it is recommend to
the Zylla Limited to invest in the acquisition of the new ferry as the net present value of the
future investment is positive (£171,138). It means that the investment option is profitable.
CONCLUSION
Based on the report how Zylla Limited can effectively arrange funds for meeting its
acquisition and working capital requirements have been made clear. The report has outlined the

various investment appraisal or capital budgeting methods. The directors of Zylla limited have
been recommended to invest in the ferry acquisition project based on NPV technique.

REFERENCES
Arkhangelskaya, L. Y. and Salin, V. N., 2021. Current State and Development Prospects of the Russian
Factoring Market (Brief Statistical Analysis). Statistics and Economics. 18(4). pp.22-34.
Crouzet, N. and Eberly, J., 2018, May. Intangibles, investment, and efficiency. In AEA Papers and
Proceedings (Vol. 108, pp. 426-31).
Dempsey, M., 2019. The valuation of equity shares: The P/E ratio. In Investment Analysis (pp. 7-36).
Routledge.
Sartzetakis, E. S., 2021. Green bonds as an instrument to finance low carbon transition. Economic
Change and Restructuring. 54(3). pp.755-779.
Shimbar, A. and Ebrahimi, S. B., 2020. Political risk and valuation of renewable energy investments in
developing countries. Renewable Energy. 145. pp.1325-1333.
Sunchalin, A. M. and et.al., 2019. Methods of risk management in portfolio theory. Revista
Espacios. 40(16).
Wu, D., Zhang, B. and Baron, O., 2019. A trade credit model with asymmetric competing
retailers. Production and Operations Management. 28(1). pp.206-231.
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