Zylla Ltd: Finance Sources, Investment Appraisal Techniques Report

This report focuses on Zylla Limited, a company operating ferries, and analyzes its financial strategies for business expansion. It identifies both short-term and long-term sources of finance, including trade credit, bank loans, equity capital, and term loans. The report also explores investment appraisal techniques like net present value (NPV), payback period (PP), and average rate of return (ARR) to evaluate the viability of expansion plans. The analysis includes a detailed evaluation of a ferry investment using NPV, demonstrating the application of these techniques in financial decision-making. The conclusion emphasizes the importance of finance and appraisal techniques for business growth and expansion. The report also includes a list of references to support the findings.

Business Scenario
for
Individual Report
1

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY ..................................................................................................................................3
Short term and long term sources of finance..........................................................................3
Investment appraisal techniques.............................................................................................4
CONCLUSION................................................................................................................................6
REFRENCES...................................................................................................................................7
2

INTRODUCTION
Business expansion is consider as strategy related to growth of business in order to
enhance stores at which potential and targeted customers can purchase organisation's products as
well as services (Adebiyi and Banjo, 2017). In this situation requirement of finance is very high
and for that company need to identify their long as well as short investments. Organisation taken
for this report is Zylla Limited, that is operating numbers of ferries which offers river crossing
services for vehicles, people and goods across river. The main aim of developing this report is to
identify short and long term source of finance to funds as well as it will also include investment
appraisal techniques.
MAIN BODY
Short term and long term sources of finance
For a company source of finance are debt, equity, retained earning, term loan, working
capital, letter of credit, euro issues and many more. These types of source of finance will used at
different situations which are faced by a company (Burns, 2016). The source of finance is
divided into two types short term and long term. Explanation of short and long term finance
sources in respect of Zylla Limited are given below:-
Short term finance:
It refers to finance required for short period of time, generally for less than a year. At
organisation it is also called as working capital financing as well as it is normally required due to
uneven cash flow into business unit, seasonal pattern and many more. In respect of Zylla
Limited, some major short term finance are given below: Trade Credit- It is considered as essential technique for financial growth, in this business
operations can be conducted in credit form. According to this, suppliers let company to
buy products or services now and pay them later. In respect of this respective company
can take delivery of more ferries or other related materials or equipments without paying
cash on the spot.
 Bank Loan- It is consider as highly flexible option for the short term business funding. In
this bank will provide loan to company for the short time which can be less than a year as
well as company need to repaid loan amount in particular time duration (Gambetti and
3

Musso, 2017). In respect of Zylla Limited they can adopt bank loan for the short term in
order to acquire more ferried and expanding business.
Long term finance:
It is consider as that financial instrument which have maturity period of more than one
year and these can be public as well as private equity instruments (Kenny and Dyson, 2016).
This types of sources are generally required for modernization, diversification, expansion and
development of business functions and operations. Long term finance for Zylla Limited are given
below: Equity capital- In this long term source of finance, funds will be paid by business by
investors in the exchange of common preferred stock. The respective source is represent
as core funding of a company at which debt funding can be added. In respect of Zylla
Limited they can attract investors in order to arrange funds through equity capital and by
which they able to organize more ferries as well as expand business. Term Loan- It is considered as that monetary loan which need to repaid in regular
payment mode over a set or specific period of time. This will be normally last for one to
ten years but it may also last for 30 years in some cases. It include an unfixed rate of
interest which add additional balance to loan. In respect of Zyalla Limited they can adopt
this source of funding mainly for expanding business services at wide areas as well as
they can also acquire it for organizing more ferries for its business services.
These are some of the main short as well as long term source of finance which Zylla
Limited can adopt for acquisition of ferry as well as for expanding its business services at
national and international level.
Investment appraisal techniques
Investment appraisal is considered as collection of different techniques which are used to
identify attractiveness of an investment. The main aim of adopting investment appraisal is to
assess viability of programmes, project or portfolio decision as well as it will also help in
generating value (Mian and Sufi, 2018). There are several investment appraisal techniques which
can be used by a company such as net present value, payback period, accounting rate of return,
internal rate of return and so on. From these Investment appraisal techniques some are adopted
by Zylla Limited in order to assess viability of their expansion plan, explanation of few
techniques are given below:-
4

 Net present value (NPV):It is consider as techniques in which a company can deviation
of current value of cash outflow or inflow will be examine. Moreover by adopting this,
Zylla Limited able to analyse its current value after the investment in effective and
effectual manner.
 Payback Period (PP): This is considered as the time duration which is normally required
for retrieve initial cost related to investment. In this it is determined that lower payback
time is being considered as duly proves beneficial for business entities.
 Average Rate of Return (IRR):This is regarded as an average net income an asset is
anticipated to produced. Its formula is utilised for making decisions related to capital
budgeting. Moreover it is helpful in ascertaining the project annual percentage rate of
return.
ARR = (Average annual profit after depreciation / Investment) x 100
Average annual profit= (265202.95/5) =53,040.59
(53,040.59 / 150000) * 100 = 35.37
Evaluation of viability of ferry:
Initial investment = 150000
Year Cash flow PV factor @ 10 % Discounted cash flow
1 55230 0.909 50204.07
2 70045 0.826 57857.17
3 88375 0.751 66369.625
4 79870 0.689 55030.43
5 57555 0.621 35741.655
265202.95
NPV = 265203-150000
= 115203
5

Through all these Investment appraisal techniques Zylla Limited able to evaluate value of
their expansion project in effective manner which help them in gaining high profitability as well
as market shares.
CONCLUSION
By above discussed point it can be determined or conclude that every firm want to
expand their business so that they can increase their services and customer's base. For which
main role is played by finance or funding and for that they need to identify numbers of sources of
finance. Source of finance can be short term as well as long term it will depend on the companies
requirement. Along with this, there are several investment appraisal techniques which help in
appraising performance of a new report or project such as net present value, payback period,
internal rate of return and so on.
6

REFRENCES
Books and Journals
Adebiyi, A.J. and Banjo, H.A., 2017. Performance of small and medium enterprises in Lagos
state: the implications of finance. Acta Universitatis Danubius. Œconomica. 13(5).
Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.
Gambetti, L. and Musso, A., 2017. Loan supply shocks and the business cycle. Journal of
Applied Econometrics. 32(4). pp.764-782.
Kenny, B. and Dyson, K., 2016. Marketing in small businesses. Routledge.
Mian, A. and Sufi, A., 2018. Finance and business cycles: the credit-driven household demand
channel. Journal of Economic Perspectives. 32(3). pp.31-58.
7