Zylla Ltd: Finance Sources and Investment Appraisal Report

This report examines Zylla Limited's acquisition of a ferry, focusing on both short-term and long-term sources of finance to meet the acquisition and working capital needs. The report details various financial instruments such as commercial paper, bank overdrafts, ownership securities, and debentures. It also explores investment appraisal techniques including Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period, providing calculations and interpretations for each. The report recommends the best investment appraisal technique and most suitable sources of finance for Zylla Limited. The study concludes with a summary of the findings and recommendations, supported by references to relevant academic sources.

INTRODUCTION TO
BUSINESS STUDIES

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Short term and long term sources of finance for acquisition of Ferry and to satisfy working
capital needs.................................................................................................................................1
2. Investment appraisal techniques and recommendation of viability of acquisition..................2
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business studies is a study which combines the elements of finance, economics,
accountancy and marketing (Lauring, and Klitmøller, 2017). It is a broad subject in the field of
social science which allow the study in depth for range of human resource management,
marketing, finance and accountancy. This report will be discussing about Zylla Limited and their
acquisition with Ferry. The report will lay emphasis on long term and short term sources of
finance for seeking funds for acquisition as well as to met working capital requirements. Various
Investment appraisal techniques will also be covered in the report.
MAIN BODY
1. Short term and long term sources of finance for acquisition of Ferry and to satisfy working
capital needs.
Short term sources of finance Commercial paper – It is a money market instrument which is usually in larger
denominations issued through nationally reputed, credit worthy, finance companies and
large manufactures in both private and public sector. The company Zylla Limited can use
this source of finance in order to meet their working capital requirements (Lynch, and Jin,
2016). Bank overdraft – This is facility provided by banks to their customers where they can
fulfill their businesses daily needs by drawing more than what they had in their saving
and current account (Cavusgil, and Knight 2015). The interest is also charged on this
overdrawn on day to day basis. The Zylla Limited can also use this facility to fulfill needs
of working capital. Trade credit – A trade credit is a facility which is associated with facility of credit
extended by creditor to debtors. It is normally followed in between trader and suppliers.
But for the company like Zylla Limited is of no use. Credit factoring – It is an arrangement with the factors where traders agreed to sell their
products at discount to debtors or account receivables. This is also not relevant method
for company Zylla Limited (Nguyen, Mujtaba, and Cavico, 2015).
Long term sources of finance Ownership securities -It is also called Capital stock or shares. The shares are most
preferable method of every business entity for raising finance for their investment or any
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other concern of business (Valente, 2015). The company raises Equity share and
preference shares in order to raise finance. Zylla Limited can follow this source of
finance for raising finance for acquisition with new ferry. Debentures – The company Zylla Limited can also opt for debentures. As this is a
document which is issued by business entities where company takes loans from debenture
holder and by issuing certificate to them company promises to pay their investment
amount back against profit. Debentures are or many types, Secured and unsecured
debentures, Redeemable and irredeemable debentures, convertible and non convertible
debentures, etc. The maturity term of debentures are generally 10-20 years (Maylor,
Blackmon,and Huemann, 2016).
 Retained earnings – It is an another method of source of finance by which company such
as Zylla Limited saves some part of profit as retained earning for future expansion and
growth in business. Almost 10% of the net profit after tax in a financial year is
compulsory to transfer by every business entity into retained earnings (Sajilan, and
Tehseen, 2015).
2. Investment appraisal techniques and recommendation of viability of acquisition.
There are various investment appraisal techniques. This report will present technique of Net
present value, Internal rate of return and Payback period.
Net present value
Discount factor Cash inflow PV
Cost of ferry 1 -150000
Cash inflows for five years:
Year 1 0.971 55230 53628.33
Year 2 0.943 70045 66052.44
Year 3 0.915 88375 80863.13
Year 4 0.888 79870 70924.56
Year 5 0.863 57555 49669.97
Sale of decommissioned ferry in year 5 0.863 45000 38835.00
Total present value 359973.42
Less : Initial investment 150000.00
Net present value 209973.42
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Interpretation : The Net present value is a difference between present value of inflows in cash
and outflows of cash in a period of time. The use of NPV is in capital budgeting and planning of
investment in order to analyze profitably of investment project. The NPV of Zylla Limited is
calculated by multiplying discounting factor with cash inflow. After that initial investment is
deducted from total present value. The resultant obtained is net present value which is
209973.42. Hence the value of NPV is positive. So the Zylla Limited can adopt this technique
for their acquisition.
Internal rate of return
IRR Cash inflow
Cash inflows for five years: -150000
Year 1 55230
Year 2 70045
Year 3 88375
Year 4 79870
Year 5 57555
Sale of decommissioned ferry in year 5 45000
38.16%
Interpretation : An internal rate of return is a metric which is used in budgeting for capital in
order to estimate profitability from investment. It is a discounted rate which make the use of
NPV of all cash flows and make project value equal to nil or zero. Internal rate of return is
calculated for Zylla Limited by built in excel formula of IRR and result is obtained which is a
positive value i.e. 38.16%. The company Zylla Limited can also adopt this technique for funding
of their acquisition.
Pay back period
Initial investment 150000 0.42
Annual cash inflow 359973.415
Interpretation : A pay back period is an amount which is taken to recover cost of investment. It
is a time length where an investment reach to a break even point. For Zylla Limited pay back
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period is calculated is four months. So, it has been estimated that company will regain their
profitability and return on investment after four months.
Recommendation
The best suitable investment appraisal technique for Zylla Limited is Net present value
and for long term source of finance ownership of securities is most suitable. Also, for short term
source of finance commercial paper is most appropriate for the company Zylla Limited.
CONCLUSION
The report is all about study of business Zylla Limited which provides services of river
crossing for people, goods and vehicles. In order to execute acquisition with ferry to meet the
demand of their services this report were formulated. This report covers sources of short term
and long term finance. Also, the techniques of investment appraisal were explained with Pay
back period, IRR and NPV. The report was also recommend the best suitable adoption of
technique for the Zylla Limited.
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REFERENCES
Books and Journals
Lauring, J. and Klitmøller, A., 2017. Inclusive language use in multicultural business
organizations: The effect on creativity and performance. International Journal of Business
Communication. 54(3). pp.306-324.
Lynch, R. and Jin, Z., 2016. Exploring the institutional perspective on international business
expansion: Towards a more detailed conceptual framework. Journal of Innovation &
Knowledge. 1(2). pp.117-124.
Nguyen, L. D., Mujtaba, B. G. and Cavico, F. J., 2015. Business ethics development of working
adults: a study in Vietnam. Journal of Asia Business Studies. 9(1). pp.33-53.
Valente, M., 2015. Business sustainability embeddedness as a strategic imperative: A process
framework. Business & Society. 54(1). pp.126-142.
Sajilan, S. and Tehseen, S., 2015. Cultural orientations, entrepreneurial competencies and SMEs
business success: The contingent roles of environmental turbulence and network
competence. Review of Integrative Business and Economics Research. 4(2). p.20.
Maylor, H., Blackmon, K. and Huemann, M., 2016. Researching business and management.
Macmillan International Higher Education.
Cavusgil, S. T. and Knight, G., 2015. The born global firm: An entrepreneurial and capabilities
perspective on early and rapid internationalization. Journal of International Business
Studies. 46(1). pp.3-16.
Online
Sources of finance. 2017. [Online]. Available through :
<http://jrajeshfm.blogspot.com/2017/04/sources-of-finance-long-term-short-term.html>.
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