Zylla Ltd: Finance Sources and Appraisal Techniques for Ferry Project

This report analyzes Zylla Ltd's short-term and long-term financing options, particularly in the context of acquiring a ferry. It evaluates various investment appraisal techniques, including the payback period, accounting rate of return, and net present value (NPV), to determine the financial viability of the ferry project. The analysis considers factors like initial investment, annual cash inflows, interest rates, and discounting values. The report concludes that purchasing the ferry is a beneficial decision for Zylla Ltd, as it offers a favorable payback period and a positive net present value, indicating a potentially significant return on investment. The report uses financial data to support its recommendation, suggesting that the firm should proceed with the ferry acquisition based on the positive financial indicators derived from the investment appraisal techniques.

TASK 4

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Explain various short term sources and long term finance available to Zylla. In case of ferry
for the working capital requirements...........................................................................................3
Describe the various appraisal techniques which can be used for operation and acquisition of
ferry..............................................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Businesses can use various sources of finance such as share, borrowings, debentures, retained
earnings and working capital. Organisation uses these funds in the business operations in order to
increase the scope of area of the business. The business activities are categorised based on the
time period and ownership of the business. Investment appraisal techniques helps in ascertaining
the management whether to invest in a particular project or not (Dean and Hickman, 2018). The
following report includes short term and long term sources of finance for meeting the working
capital requirement of Zylla limited. By using investment appraisal technique decision is taken
by the investor according to the results of the projects.
MAIN BODY
Explain various short term sources and long term finance available to Zylla. In case of ferry for
the working capital requirements.
There are various sources of finance which can be used by the company in order to finance
its business activities. The proposal of ferry to be purchased by the company and its daily
working capital requirement needs to be funded by the organisation by using various sources of
finance. Some of the sources of finance are explained below,
Long term source of finance,
 Share issue: A company can raise its funds by issuing equity share in the general public
and raise funds in order to arrange funds for the operation.
 Debentures: it is also a source of finance which is used by the organisation to arrange
funds by paying a fix amount at regular intervals and paying the remaining sum at the
maturity of the debentures (Gabrielli and Ruggeri, 2019).
Short term sources of finance for working capital:
 Trade Credit: Working capital requirement is arranged by Zylla by their supplier of
goods. The amount saved by taking the goods on credit will help the organisation in using
the amount left with in other expansion activities.
 Bank Loan: Banks lends money to the organisation in lieu of which they charge interest
for the amount given by the bank.

Describe the various appraisal techniques which can be used for operation and acquisition of
ferry.
Interest amount to be paid each year for amount acquired for the purchase of ferry =
1150000 * 3 /100 = £4500
Pack Back Period: This is a capital appraisal technique which is used to calculate the time
period in which the amount invested in the project can be regained. It is the breakeven point
where the inflows equals to the outflows of the management. It also helps in maintaining the
liquidity (Gunarathne and Lee, 2019).
Year £000
Annual cash
inflow
Interest rate Annual cash
inflow
Cumulative
cash flow
0 -150000
1 55230 4500 50730 -99270
2 70045 4500 65545 -33725
3 88375 4500 83875 50150
4 79870 4500 75370 125520
5 102555 4500 98055 223575
Payback period = Initial Investment / Cash flow per year
= 2 + 33725 / 83875
= 2 + 0.4
= 2.4 years
Accounting rate of return: It helps in determining the rate which is earned by the investing the
minimum amount of business. This method does not account for the time value of money.
Accounting rate of return = Average cash inflow / average investment
= [(50730 + 65545 + 83875 + 75370 + 53055) / 5] / [(150000 – 45000) / 2]
= 328575 / 5) / (105000 / 2)
= 65715 / 52500
= 1.25 %

Net Present Value: This technique helps in determining the present values of the future inflows
of the project. It is calculated by taking into consideration the discounting factor which
determines the present value of future cash inflows (Hürlimann, 2019).
Net present value = Net Present value of Cash inflows – Net cash Outflows
Year £000
Net Annual cash inflow Discounting value @ 10
%
Cumulative
cash flow
1 50730 0.971 49258.830
2 65545 0.943 61808.935
3 83875 0.915 76745.625
4 75370 0.888 66928.560
5 98055 0.863 84621.465
Total 339363.415
Net present value = £ 339363.415 – 150000 = £ 189363.415
From the above values calculated it can be interpreted that the Zylla group’s decision of
purchasing the ferry is beneficial. Cost of capital of the company is 10%, The amount of initial
invested investment will be recovered in the short span of time which is 2 to 3 years which will
be recovered. The rest of the period the company will earn would be the surplus of the company.
The Net present value of the project suggested that the company will earn a significant amount
over and above the initial investment of the company. Total gain over the net amount invested
will be £ 189363.415, thus the firm should purchase the ferry (Mueller and et.al., 2019).
CONCLUSION
From the above report it can be summarised that by using investment appraisal technique the
organisation can compare the projects by their return and determine the profitability of the
project. It also helps in ascertaining the present value of the future inflows of the project. From
the calculated methods it can be seen that the company can purchase the ferry and it will earn
profits for the company.

REFERENCES
Books and Journals
Dean, M. and Hickman, R., 2018. Comparing cost-benefit analysis and multi actor multi criteria
analysis: The case of Blackpool and the South Fylde Line. In Decision-making for
sustainable transport and mobility. Edward Elgar Publishing.
Gabrielli, L. and Ruggeri, A.G., 2019. Developing a model for energy retrofit in large building
portfolios: Energy assessment, optimization and uncertainty. Energy and buildings, 202,
p.109356.
Gunarathne, A.N. and Lee, K.H., 2019. Environmental and managerial information for cleaner
production strategies: An environmental management development perspective. Journal
of Cleaner Production, 237, p.117849.
Hürlimann, C., 2019. Valuation of Renewable Energy Investments: Practices Among German
and Swiss Investment Professionals. Springer.
Mueller, J.P. and et.al., 2019. Genetic progress and economic benefit of community-based
breeding programs for sheep out-and upscaling options in Ethiopia. Small Ruminant
Research, 177, pp.124-132.