Zylla Ltd Report: Evaluating Finance Sources and Investment Appraisal

This report analyzes the financial strategies of Zylla Limited, a company engaged in ferry services, intending to invest in a new ferry. The report explores various sources of short-term and long-term finance, including trade credit, customer advances, discounting of bills, share capital, venture funding, and bank loans, to determine the most suitable options for Zylla Limited's working capital and acquisition needs. Furthermore, it evaluates investment appraisal techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period to assess the viability of the new ferry acquisition. The analysis recommends a combination of customer advances and trade credit for working capital and a bank loan for long-term financing. The payback period is identified as the most convenient appraisal technique, recommending the investment in the new ferry due to its profitability and quick return on investment.

Business Scenario for
Individual Report

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Analysis of sources of short and long term finance.....................................................................1
Evaluation of various investment appraisal techniques and recommending the viability of the
acquisition....................................................................................................................................2
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Investments are the assets which are acquired with the aim of earning profits. It is important
to check the viability of an investment by computing its returns and profits. The main aim of this
report is to build an understanding about the various sources of finance. In this report, a case of
Zylla Limited is considered which is engaged in the business of ferries and provide river crossing
services to its customers. In this report, various long and short term financial sources are
analysed to identify the most suitable source for Zylla limited so that they can invest it in a new
ferry. For this purpose, various investment appraisal techniques are also evaluated.
MAIN BODY
Analysis of sources of short and long term finance
Zylla limited is a small scale organisation which is currently at a growing phase and to
enhance the profitability, this organisation is intending to invest in purchasing of a new ferry.
Purchase of the new ferry will result in funding requirement of long term as well as short term.
Few short term finance sources which can fulfil the working capital requirement of this company
are trade credit, customer’s advances, discounting of bills etc. All these sources are analysed
below:
 Trade credit – This source of finance is related with suppliers in which service providers
can operate by acquiring credit from their trade partners (Chernykh and Theodossiou,
2011). This is a short term credit facility as no supplier will allow Zylla limited to hold
their value money more than a year. This source can be used to maintain the ferry and
spend money on workings of the ferry.
 Customer’s advances – Unlike above mentioned source of finance, this source is related
to customers. Organisations such as Zylla limited can seek advance from their customers
from the services which customers can redeem later this will allow company to have
funds for fulfilling their working capital requirements.
 Discounting of bills – This is another short term finance source which enable company
to provide a bill discounting service to their suppliers. Zylla can use this source by
providing a bill to supplier which can be discounted at a later date from bank.
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Apart from the above mentioned sources of finance, there are few long term finances as well
which can help Zylla to acquire funds for purchase of the new ferry. Some of these sources
are analysed below:
 Share capital – This is a long term source of procuring funds in which whole organisation
is divided in shares and some of those shares are sold to employees or general public
against consideration which allows company to develop their operations. Zylla limited is
a private company due to which it cannot sell its shares to general public but shares of
this company can be sold to this company’s employees and trade partners.
 Venture funding – By using this long term funding source, Zylla can merge with any
other company and develop a new venture which will allow them to multiply their funds.
This funding source will not levy any liability of interest rates (Angelini and et.al., 2015).
 Bank loan – This funding source allows organisations and individuals to procure funds
from banks against which they must provide a guarantee and pay annual interest. By
using this source, Zylla can acquire new ferry without complicating the process.
From the above analysis, it has been evaluated that for fulfilling working capital requirement,
Zylla should use combination of customer advances and trade credit source which will not levy
burden on interest on them and their requirement will also be fulfilled. Long term finance source
of bank loan is most appropriate for Zylla limited as by this they can acquire funds at low interest
rates.
Evaluation of various investment appraisal techniques and recommending the viability of the
acquisition
Investment appraisal is the procedure of checking the viability of an investment so that
effective decision regarding acquiring the assets can be made. In this case of Zylla limited, this
company is considering to invest in a new ferry. In order to check the viability of this new ferry,
Zylla limited can use various techniques such as Net present value (NPV), Payback period (PBP)
and Internal rate of return (IRR).
NPV is the value which is computed by comparing total cash inflows and outflows. The
technique helps an organisation to ascertain the profitability of an assets so that company can
decide whether or not it is suitable for them to invest in that asset (Schlegel Frank and
Britzelmaier, 2016). NPV for the ferry for Zylla is ascertained in below in which it is evident that
if Zylla acquire the ferry for 150000 pounds then they will earn the profit of 209979.415.
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Year Net cash
flows
PV factor @
10%
Discounted
cash flow
-150000
1 55230 0.971 53628.33
2 70045 0.943 66052.435
3 88375 0.915 80863.125
4 79870 0.888 70924.56
5 57555 0.863 49669.965
5 45000 0.863 38835
Total discounted
cash flow 359973.415
Less: initial
investment 150000
NPV 209973.415
IRR 38%
Internal rate of return is the interest rate on which company will gain the profit against
the value which is invested for the acquirement of new assets (Caulfield, Bailey and Mullarkey,
2013). The IRR for new ferry is 38%.
Payback period is the time period in which invested amount by the company can be
recouped. For Zylla organisation, payback period id calculated as 2 years and 2 months.
Year Net cash
flow Cash Flow
1 55230 55230
2 70045 125275
3 88375 213650
4 79870 293520
5 57555 351075
5 45000 396075
3
-0.79691999
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Payback
period 2.203080005
Among all the investment appraisal techniques analysed above, payback period is
considered as most convenient as by this they can ascertain in what time period Zylla can recoup
their initial investment amount of 150000 pounds. According to this investment technique, it is
recommended that Zylla must invest their money in acquiring the new ferry as it will result in
high profits and their entire invested amount will be realised in the small span of 2 years and 2
months.
CONCLUSION
From the above report, it has been observed that ever organisation requires funds to
develop in the business environment. It has been concluded after developing the above report
that the investment appraisal technique of payback period is easy to calculate and assist a
company to show the time in which entire initial investment can be recouped.
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REFERENCES
Books and Journals
Angelini, P. and et.al., 2015. B asel III: long‐term impact on economic performance and
fluctuations. The Manchester School. 83(2). pp.217-251.
Caulfield, B., Bailey, D. and Mullarkey, S., 2013. Using data envelopment analysis as a public
transport project appraisal tool. Transport Policy. 29. pp.74-85.
Chernykh, L. and Theodossiou, A. K., 2011. Determinants of bank long-term lending behavior:
Evidence from Russia. Multinational Finance Journal. 15(3/4). pp.193-216.
Schlegel, D., Frank, F. and Britzelmaier, B., 2016. Investment decisions and capital budgeting
practices in German manufacturing companies. International Journal of Business and
Globalisation. 16(1). pp.66-78.
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