Business Scenario For Individual Report Assignment Sample

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Introduction

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In this report, a detailed analysis of the financial sources and “investment appraisal techniques” of Zylla Limited will be done. It is a ferry-based company that initiates its operation by providing river-crossing services for the vehicles and the people. Decisions regarding purchase of a new ferry will be made in this aspect.

Sources of finance

For successful acquisition of the ferry, the company requires some “working capitals”. The “sources of funds” for Zylla Limited are discussed below:

• Overdraft agreement: This source can meet the “short-term needs” of the organization. In the present scenario, the “overdraft agreement” plays a crucial role in keeping the “working capital” on track. It is a flexible process of retrieving the funds for the buying of the new ferry. The “overdraft agreement” can be beneficial to meet the “short-term debt” of the organization (Pham et al. 2020). The “financial gearing requirements” of the business can be met in this process. However, high “interest rate” can be charged in the financial source. It is a major disadvantage of the “overdraft agreement”.
• Loans from banks: It is the most common process of retrieving funds for the business. There are several “term loans” available for the business. It is necessary for the business to choose “short duration loans” for purchasing the new ferry. The financial management can take the “loans” from the bank after evaluating “suitable interest rates”. The “capital flows” of the business is also evaluated in this process.
• Equity share: It is identified as a “long-term source of finance”. The company can raise the value of “equity share” to raise the capital of the business. The “long-term sources” are also required to pay the “overall debts” of the business (Shrotriya, 2019). It can play a significant role in purchasing the new ferry to enhance profitability. For raising the funds, the organizational management is required to distribute the “equity shares” among the people. It can ensure “long-term financing” for the organization. It can meet the “working capital needs” of Zylla Limited. The “retained earnings” can also play a significant role in this aspect.

Investment appraisal techniques

Main focus of the “capital investment evaluation” is to maintain efficiency of “investment plans” based on long-term and short-term requirements of the business. The “investment appraisal technique” is necessary to determine whether it is beneficial to invest in the project or not. The organizational management can also make relevant decisions regarding the sustainability of the business by using this technique. The crucial “investment appraisal techniques” are:

• Net Present Value
• Payback Period
• IRR
• ARR
• Profitability index

In the present scenario, “net present value” and “internal rate of return” are considered as the most relevant appraisal techniques for making decisions regarding investment in the new ferry.
Net Present Value
The financial management can use NPV to evaluate the “cash inflows” of the business in different years. The possibility of “ferry project expansion” can be determined in this aspect. Based on the analysis, it is identified that the “cash inflows” in the first 2 years are £55230000 and £70045000 respectively. Based on the “borrowing rate” and “discount factor”, it has been identified that there is a huge NPV of the project compared to the initial investment (Dawson et al. 2018). Thus, the organizational management of Zylla Limited can invest in purchasing the new ferry. The “project expansion” can be profitable for the business. Thus, it is necessary to consider the “appraisal technique” beneficial for making investment decisions.
Internal rate of return
The IRR is determined as a “discounting rate” used to provide relevant information regarding the effectiveness of “cash flows” in the organization. It is a crucial metric for financial analysis of determining effectiveness of potential investment. In the present scenario, profitability in the purchasing decision of a new ferry can be evaluated (Wijnen et al. 2020). The organizational management can also evaluate the “capital cost” through this technique. In this case, the “internal rate of return” indicates that the project can play an effective role in developing the financial sustainability of the company. As the IRR of the project reflects a positive value, the project can be accepted. The buying decision of the ferry can be made in this aspect.

Conclusion

This report sheds light on the decisions to be taken by Zylla Limited for purchasing the new ferry. Main purpose of this context is to determine the “appraisal technique” selected by the company. Decisions regarding expansion of the ferry project can be made in this aspect. The “financial gearing requirements” of the business can be met in this process.