Analysis of Financing Options and Investment Appraisal for Zylla Ltd

This report analyzes the financial strategies of Zylla Ltd, a ferry business, examining both short-term and long-term funding sources. It explores options like bank overdrafts, promissory notes, trade payables, accumulated earnings, and bank loans, with a recommendation for a bank loan as the most feasible option. The report then evaluates investment appraisal techniques, specifically Net Present Value (NPV) and payback period, to assess the viability of investing in a new ferry. The NPV analysis reveals a positive return of approximately GBP 209,973 on an initial investment of GBP 150,000, with a payback period of around 2 years and 2 months. The conclusion emphasizes the importance of choosing suitable financing methods and highlights NPV as the most efficient technique for determining investment feasibility, recommending that Zylla Ltd proceed with the ferry investment.

Business Scenario:
Individual Report

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Various short and long-term sources of finance..........................................................................1
Evaluation of investment appraisal techniques with recommendations......................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................5

INTRODUCTION
Business situation is the combination of factors that converge to form an organization. The
central motive in producing this study is to provide an explanation of investment or project
appraisal methods and the methodology by which any investment can be analysed or evaluated
(Alkaraan, 2017). A narrow-scale corporation named Zylla Ltd is being reviewed in this study-
report. The corporation specializes in ferries business under which it offers river
commute crossings services to different people and vehicles. Multiple different short-term as
well as lengthy-term sources of funding/finance are examined in this study for the intention of
fulfilling the corporation's funding requirements. Afterward in this study, key investment
appraisal techniques/methods are evaluated to determine whether or not proposed project
or investment of the ferry is feasible.
MAIN BODY
Various short and long-term sources of finance
The enterprise considered in study is Zylla Ltd, which seeks funds for their
newest investment in ferry to provide them with access to boost their efficiency and address
ever-increasing market demands. Investing in new ferry ltd. has lifted both Zylla Ltd's short-term
and lengthy-term financing criteria. Short-term financing for the motive of having met the need
for operating capital and long-term funding to purchase new ferry. All those funding alternative
options are simply listed and discussed below:
Bank overdraft facility It is a kind of short-term fund facility that the company's bank may tap.
This system allows an enterprise to withdraw a certain sum (depending on limit provided by
bank) from its current account that exceeds the total available balance. The
banking institution charges interest on this service and it does not place an impact pressure on the
corporation. The corporation can use such fund to satisfy its requirements for operating or
working capital requirements, and by doing so, they can easily manage ferry (Awojobi and
Jenkins, 2016).
Promissory note – It's also a major means of organisational finance for a short term,
because the duration of these note is limited to one year. Enterprises such as Zylla Limited.
through issue promissory note to its trading partners or particular entities from whom they may
receive a sum payable on certain due date together with the specified interests or commission.
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Trade payables – It's another form of short-term financing that helps corporations to buy
and sell with their suppliers/vendors without paying them cash instantly on trade. This fund's
realizable span is approximate one-year dependent on the vendor's credit scheme/policy. Zylla
can purchase necessary raw materials for carrying out operations on credit by using this channel
and therefore can pay vendors back after a certain predetermined period but not more than one
year generally. Such fund fulfils their requirements related to working capital.
Accumulated earnings: This is significant long-term finance source/means that allows
corporations to elevate funds through their yearly earnings/profits for future uncertain scenarios.
Zylla ltd can utilize this fund to buy new ferry for which company is not required to pay any
interest to an external or third parties. This kind of source of financing is only useful if the
business has sufficient funds in its accumulated reserves or profit funds.
Bank loan: It is commonly viewed as a lengthy-term source of financing that helps
corporations to elevate funding from commercial bank loans against that they will pay interest
thereon. In this scenario, Zylla can raise finances from banking institution to acquire new ferry
and thereby finance their essential requirements related to working capital. cThis form of
financing has the downside that Zylla Ltd requires to pay a regular interest sum at a specific rate
against balance of loan (Bas, 2013).
After evaluating multiple sources of finances, this has been determined that loan
form bank is the most feasible and efficient means of financing for Zylla ltd to meet their
key requirements both for short-run and longer-term financing.
Evaluation of investment appraisal techniques with recommendations
Reviewing an investment's feasibility is indeed an investment
appraisal/evaluation practice. There are multiple techniques through which Zylla Ltd can assess
the effectiveness of acquiring new ferry that contains the NPV as well as Payback duration. With
the use of such methods, the current ferry's viability and pay-back duration is determined
as below and has initial cost of GBP 150,000.
Net cash flows PV factor @ 10% Discounted cash flow
Year 1 £ 55230 0.971 £ 53628.33
Year 2 £ 70045 0.943 £ 66052.435
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Year 3 £ 88375 0.915 £ 80863.125
Year 4 £ 79870 0.888 £ 70924.56
Year 5 £ 57555 0.863 £ 49669.965
Sale of decommissioned
ferry £ 45000 0.863 £ 38835
Total discounted cash flow £ 359973.415
Less: initial investment £ 150000
NPV £ 209973.415
Year Net cash flow Cash Flow
Year 1 £ 55230 £ 55230
Year 2 £ 70045 £ 125275
Year 3 £ 88375 £ 213650
Year 4 £ 79870 £ 293520
Year 5 £ 57555 £ 351075
Sale of decommissioned ferry £ 45000 £ 396075
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-0.79691999
Payback period 2.203080005
From the quantitative evaluation above, this has been articulated that the new ferry is able
to provide profitability of around GBP 209973, and ferry's initial investment can be pay-
backed over a time-span of around 2 years & 2 months. Since the NPV method is actually
capable of calculating profitability this is regarded to be the quite appropriate method (Schlegel,
Frank and Britzelmaier, 2016). Taking into consideration NPV as the basis, it has been inferred
and advised that Zylla ltd should make invest in ferry as they will gain a return of
GBP 209973 from the GBP 150000 investment.
CONCLUSION
From the aforementioned study, this has been ascertained that when organisation plan to
make investment or acquire new assets, each corporation needs specific sources of funding.
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When evaluating fiscal stability and opportunities for external development, it is essential to
evaluate which means of financing would be most suitable. In the above study, this has been
observed that the bank loan is most suitable form of funding as the corporation can conveniently
repay the loan sum together with interests because company in growing phase. Besides this, this
has also found that NPV is most efficient technique for determining an investment's viability.
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REFERENCES
Books and Journals
Alkaraan, F., 2017. Strategic investment appraisal: multidisciplinary perspectives. Advances in
Mergers and Acquisitions, p.67.
Awojobi, O. and Jenkins, G.P., 2016. Managing the cost overrun risks of hydroelectric dams: An
application of reference class forecasting techniques. Renewable and Sustainable
Energy Reviews, 63, pp.19-32.
Bas, E., 2013. A robust approach to the decision rules of NPV and IRR for simple
projects. Applied Mathematics and Computation, 219(11), pp.5901-5908.
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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