Analysis of Funding Sources and Investment Appraisal for Zylla Limited

This report examines the financial strategies of Zylla Limited, a ferry service provider. It begins by detailing both short-term and long-term funding sources, including bank overdrafts, loans from family and friends, bank loans, trade credit, preference shares, and debentures, providing advantages and disadvantages of each. The report then delves into investment appraisal techniques, specifically net present value (NPV) and internal rate of return (IRR), illustrating the application of these methods with a discounted cash flow analysis. The conclusion supports the purchase of new vessels to meet customer demand, based on the positive NPV, highlighting the potential for increased market value. The report references various academic sources to support its financial analysis.

BUSINESS SCENARIO
FOR INDIVIDUAL
REPORT

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Sources of long and short term funds......................................................................................1
2 Various investment appraisal techniques..................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Zylla limited is a company which provides ferry services like crossing of passengers,
vehicles and goods through river. This company is involved in this business from many years
and they have higher growth in the market. Due to this customers are demanding more services
and company is trying to satisfy their demand by the purchasing more vessels. This project report
contains detailed information about the various kind of financial sources of long and short time
period as well as their advantage, disadvantage. Apart from it highlights on different kind of
investment appraisal techniques.
MAIN BODY
1. Sources of long and short term funds.
Funds are very important to implement day to day activities and for making long term
policies(Laursen and Thorlund, 2016). In the absence of fund it would be difficult to run a
business. Eventually, organisations need both kind of funds long and short time periods. Herein
some types of funds are described below which are needed by Zylla limited for acquisition of
ferry:
Short term fund- These are the funds which are needed by the organisations for short
time period, that can be less than one year. Short term funds can be used for fulfilment of
working capital. There some types of short term funds are mentioned below:
1. Bank overdraft- Bank overdraft is a kind of service which is provided by the banks
when bank balance is zero. In this customers can withdraw the money even if there is no balance
in the bank account. For companies it is considered as a short term loan which has to pay to the
bank. It has some advantages and disadvantages:
 Advantage-
It satisfies the need of companies whenever they need immediate loan. This save
their time and cost(Lavena, 2016). The above mentioned company use this fund
for completing day to day activities.
 Disadvantage-
Bank overdraft has some limitations. It is just a short time period loan for which
companies has to pay higher interest rate. Some times this option becomes
1

expansive. If the Zylla limited company gets money from this method then they
has to pay higher interest.
2. Loan from family and friends- It is a simple and easy way to get loan. This includes
relatives and friends who can provide money on the basis of trust and goodwill(olyvyanyy,
Smirnov and Weske 2015). In this, agreement is not necessary. In the context of companies, they
get this type of loan from their neighbour companies on the behalf of trust in each other. It's
advantage, disadvantage described below:
 Advantage-
This is very easy to get in less time and cost. As well as it does not require any
strict agreements. The above company can get this loan from their knowing
financial institutions.
 Disadvantage-
It has some limitations, like in the absence of agreement there can be possibility
of fraud.
3. Bank loan- This type of loan is provided by the banks for time period of less then one
year. If Zylla limited gets this type of loan then they have to pay instalments each month. The
advantage and disadvantage are mentioned below:
 Advantage-
It consists lower interest rate on loan which becomes helpful to the
company in paying back the loan amount.
 Disadvantage-
This type of loan needs any security that is taken by bank. In the absence of any
security it is not possible to get loan.
4. Trade credit- This type of credit is very helpful for the companies in getting goods and
material on credit(Scott, Hall and Gössling, 2016). The above mentioned company can use this
for purchasing of vessels on credit. Though it has some advantage and disadvantage which are
following:
 Advantage-
This is beneficial for the companies because it does not require any security as
well as no interest rate.
 Disadvantage-
2

If buyer breaks the trust to pay then it could be a huge loss for supplier. Zylla
limited has to pay back the credit amount if they make any transaction on credit.
Long term fund- Long term finance is related to obtaining of funds by a business for
more than a year are known as long term finance sources(Long term finance sources, 2019). In
simple, different company borrows funds from bank using long term finance methods than they
expects to pay back these loan over a time frame of more than one year. For Zylla Limited
various sources of long term are discussed below:
1. Preference share- It is consider to be valuable type of finance for company as they hold
a fixed rate of dividend and also carry preferential factors of both debts and ordinary equity
share. They are commonly knows as preferred share or stock so basically respective company
consider as long term capital owing as it does not includes any voting obligations therefore it is
easy for company to operate without any impact on their ownership.
 Advantage-
The main important for Zyala Limited is that these share are useful in increasing fund for long
period as it do not have any charge upon the assets of company.
Mainly the company prefer these kind of share because rate of dividend are fixed and they got
leverage at the repayment of capital.
 Disadvantage-
The main disadvantage is that dividend allowed on preference share are not allowed for
deduction at the time of calculating tax able income.
2. Debenture- This type of long term, sources includes stocks, bonds, securities etc. of a
business firm that constitute a charge or not over the assets during a particular time
frame(Sekaran and Bougie, 2016). These are consider to be more crucial pat of funding a firm so
that urgent and initial needs are meet in secure manner. Basic advantages and disadvantage of
debt to Zylla Limited is as follows:
 Advantage-
It does not affect the ownership control and entire management of company as debenture holder
so not have any voting right.
Main important interest paid on debenture are consider to be deductible at the time of calculating
total income for tax.
3

 Disadvantage-
It includes various commission such as brokerage fee, transfer duty amount that add big amount
and it directly raise the cost of raising capital.
2 Various investment appraisal techniques.
Net Present value (NPV): It is basically the difference among the present value of total
cash inflows and the actual outflows within specific time frame. This method is mainly
implemented by companies while planning for investment and capital budgeting that support to
examine the profitability of that particular project. In case if NPV value is positive than company
would consider investment worthy and good.
Advantages:
 This technique consider each thing such as timing of cash flows and actual time
period related to them in arriving at an appraisal.
 It holds actual value of money and consider the total cost of money into
considerations.
Disadvantage:
 The results are basically depended on the rate of discount and rate of interest that
may be not appropriate.
 The main disadvantage to Zylla limited is that NPV can be compared to different
project in case of initial cost of capital are similar.
IRR(Internal rate of return)- The internal rate of return is a kind of investment
appraisal technique which is related to the measurement of interest rate of investment(Slawinski
and Bansal, 2015). This investment appraisal technique is also known by the discounted cash
flow rate of return. It has some advantage and disadvantage which are following:
Advantage-
 This technique is helpful in analysing the interest rate of investment project that is
important to evaluate the profitability of any investment.
 Disadvantage-
IRR technique is not applicable on those cash flows which are unconventional. It
requires equal cash flow.
4

Calculation of discounted cash-flows:
Year Cash inflow Discount factor @
1.000
Discounted cash flow
Year 1 £55,230 0.971 £53,628.33
Year 2 £70,045 0.943 £66,052.43
Year 3 £88,375 0.915 £80,863.12
Year 4 £79,870 0.888 £70,924.56
Year 5 £57,555 0.863 £49,669.96
Sale of ferry £45,000 0.863 £38,835
Cash out flow Net present value Total
£150,000 £359,973.4 £209,973.4
CONCLUSION
From above project report it has been concluded that net present value of above
company's project is worth-full. Additionally, it also concluded that company can purchase new
vessels for satisfying the demand of customers because it is beneficial for the company. If they
implement this project then it can help them in more increased demand with great market value.
5

REFERENCES
Books and journals:
Laursen, G. H. and Thorlund, J., 2016. Business analytics for managers: Taking business
intelligence beyond reporting. John Wiley & Sons.
Lavena, C. F., 2016. Whistle-blowing: individual and organizational determinants of the decision
to report wrongdoing in the federal government. The American Review of Public
Administration. 46(1). pp.113-136.
Polyvyanyy, A., Smirnov, S. and Weske, M., 2015. Business process model abstraction. In
Handbook on Business Process Management 1 (pp. 147-165). Springer, Berlin,
Heidelberg.
Scott, D., Hall, C. M. and Gössling, S., 2016. A report on the Paris Climate Change Agreement
and its implications for tourism: Why we will always have Paris. Journal of Sustainable
Tourism. 24(7). pp.933-948.
Sekaran, U. and Bougie, R., 2016. Research methods for business: A skill building approach.
John Wiley & Sons.
Slawinski, N. and Bansal, P., 2015. Short on time: Intertemporal tensions in business
sustainability. Organization Science. 26(2). pp.531-549.
Online
Long term finance sources. 2019.
<https://efinancemanagement.com/sources-of-finance/preference-shares-and-its-features>.
6