Financial Analysis: Zylla Ltd Ferry Acquisition Report - Finance

This report, prepared for Zylla Ltd, a company operating ferries, analyzes the financial viability of acquiring a new ferry to meet increasing demand. It assesses both short-term and long-term funding sources, including factoring, retained profit, equity, debt, and bank loans. The report evaluates investment appraisal techniques such as payback period, Net Present Value (NPV), and Internal Rate of Return (IRR) to determine the project's financial attractiveness. The analysis includes detailed calculations of cash inflows, depreciation, and profitability, ultimately recommending whether Zylla Ltd should invest in the ferry acquisition based on the financial outcomes. The report concludes that the project is viable, with positive NPV and IRR, suggesting that Zylla Ltd should proceed with the investment to achieve its goals.

Financial Decision

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Assessing long and short term sources of funds available to Zylla Ltd and for the working
capital needs.................................................................................................................................3
Presenting the evaluation of investment appraisal techniques and recommending the viability
of ferry.........................................................................................................................................4
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
In the context of business unit, manager is assigned with accountability to rake suitable
decision that contributes in organizational profitability. The present report is based on the case
scenario of Zylla Ltd which operates a number of ferries. As per the scenario with the motive to
fulfill increasing demand level company is planning to purchase more ferries. In this regard,
report will provide deeper insight about the funding sources that Zylla Ltd can undertake for the
acquisition of new ferries and meeting requirements pertaining to working capital. Further, report
also entails the extent to which acquisition of ferry will prove to be beneficial for the firm.
MAIN BODY
Assessing long and short term sources of funds available to Zylla Ltd and for the working capital
needs
Given case scenario presents that company is looking for the sources that helps in
meeting funding requirements pertaining to ferry acquisition and working capital. In this regard,
several short and long term sources are available such as:
Short term sources of finance
 Factoring: By discounting receivable from financial institution early at discounting rates
Zylla Ltd can receive funds before due date. It is one of the most effectual sources which
help in collecting funds for meeting to day to day operations at lower cost (Tang and
Moro, 2020).
 Retained profit: Further, with the motive to cope up with contingent situation company
retains some profit margin. Thus, by using retained profit Zylla can ensure daily financial
requirements for some time period.
Long term sources
 Issue of equity and debts: For the collection of £150000 with regards to ferry acquisition
company can issue equities and debts. For getting higher income and value addition
investors prefer to invest money in shares of growing firms. In the case of equities,

business units are not obliged to give fixed payment to the shareholders, Company give
dividend only when it earns enough profit (Hogan, Hutson and Drnevich, 2017).
However, in debt company has to make interest payment on periodical basis.
 Bank loan: Zylla Ltd can raise funds for ferry acquisition by taking loan from financial
institution. Moreover, banks usually prefer to provide loan to the firm which is highly
growing and profitable. Thus, by taking loan company can also take benefits in tax
brackets. However, in this, firm is required to make interest payment which in turn
imposes cost and thereby affects profitability.
Presenting the evaluation of investment appraisal techniques and recommending the viability of
ferry
With regards to the assessment of new ferry acquisition several investment appraisal tools
are available that Zylla can undertake for ascertaining viability in monetary terms. It includes
payback period, NPV and IRR which provides deeper insight about the extent to which proposed
investment will aid in organizational growth and success. Moreover, payback period entails time
period within which initial investment will be recouped. By undertaking this, company can
assess time period when business unit starts to attain profitability (Investment appraisal
techniques, 2020). However, this method presents solution without considering time value of
money concept which in turn limits significance level.
Further, NPV implies for the difference takes place between cash inflows and outflows. It
helps in making estimation about profitability associated with capital projects in financial terms.
On the other side, IRR method presents return in the form of percentage and thereby assists in
project selection (Kengatharan, 2016). However, it is to be critically evaluated, on the basis of
identification and selection of appropriate discounting factor. Moreover, when firm fails to select
suitable discounting factor then it may result into ineffective decisions.
Computation of cash inflows

Year
Cash
inflow
Less:
depreciation Profit
Less:
interest EAT
Cash inflow
(EAT +
depreciation)
1 55230 21000 34230 4500 29730 50730
2 70045 21000 49045 4500 44545 65545
3 88375 21000 67375 4500 62875 83875
4 79870 21000 58870 4500 54370 75370
5 102555 21000 81555 4500 77055 98055
Particulars
Figures
(in £)
Cost 150000
Scrap value 45000
Life 5 years
Depreciation 21000
Payback period
Year
Cash inflows (in
£)
Cumulative cash inflows (in
£)
1 50730 50730
2 65545 116275
3 83875 200150
4 75370 275520
5 98055 373575
Payback period: 2 + (150000 – 116275)
= 2 + (33725 / 83875)
= 2 + .4
= 2.4 years

Net present value
Year
Cash inflows
(in £) PV factor @ 3%
Discounted cash
inflows (in £)
1 50730 0.971 49252
2 65545 0.943 61782
3 83875 0.915 76758
4 75370 0.888 66965
5 98055 0.863 84583
Total discounted cash inflows 339341
Less: initial investment 150000
NPV 189341
Internal rate of return
Year Cash inflows
0 -150000
1 50730
2 65545
3 83875
4 75370
5 98055
IRR 36%
By applying investment appraisal tools, it has identified that Zylla Ltd will recover
amount of initial investment such as £150000 within the period of 2 years and 4 months.
Thereafter, business unit will generate profit margin and would become able to contribute in
organizational success. Further, it has found from the evaluation that NPV and IRR accounts for
£189341 and 36% respectively. As per the selection criteria, company should give priority to the
project having less payback period and higher NPV & IRR. In the context of current evaluation,

after deducting initial investment from discounted cash flows business firm will get enough
returns from ferry acquisition. Along with this, IRR associated with the project is also higher in
comparison to the standard value. By referring all such aspects, it can be entailed that concerned
ferry acquisition project helps company in attaining predetermined aim and objectives.
CONCLUSION
By summing up this report, it can be concluded that using factoring and equity as well as
debt sources Zylla can meet funding requirements to the significant level. Besides this, it can be
inferred from the evaluation that from monetary perspective proposed investment is viable.
Moreover, NPV and IRR pertaining to ferry acquisition is higher and positive. Thus, Zylla Ltd is
advised to invest funds in ferry acquisition and thereby gets desired level of outcome or success.

REFERENCES
Books and Journals
Hogan, T., Hutson, E. and Drnevich, P., 2017. Drivers of External Equity Funding in Small
High‐Tech Ventures. Journal of Small Business Management. 55(2). pp.236-253.
Kengatharan, L., 2016. Capital budgeting theory and practice: a review and agenda for future
research. Applied Economics and Finance. 3(2). pp.15-38.
Tang, Y. and Moro, A., 2020. Trade credit in China: Exploring the link between short term debt
and payables. Pacific-Basin Finance Journal. 59. p.101240.
Online
Investment appraisal techniques. 2020. Online. Available through:
<https://efinancemanagement.com/investment-decisions/investment-appraisal-techniques >