Questions- This assessment will cover following questions:
- Zylla company provides ferry service which offer river crossing services to people, vehicles as well as goods across the river. What are the short term and long-term sources of finance that helps to meet the capital needs.
- Evaluate various investment appraisal techniques used by the Zylla company.
Short term finance basically fulfil the small period financing needs of the businesses. Short term finance includes such instruments, like; commercial paper, municipal debt, treasury bills, etc. In other hand the long term finance is useful in fulfil long term financial needs of the businesses. It also includes instruments, like; bank loans, leasing, bonds, etc. This is discusses the various sources of finance for the Zylla company to acquire the Ferry. These sources also fulfil the company's working capital needs.
Sources of Finance
There are many long term and short term sources of finance which discusses below;
Short Term Sources
- Bank Credit: Mainly commercial banks are providing this facility to the companies. In which this perfect option for the Zylla company to rise fund for acquisition of the Ferry. The finance management of the company need to request the selected bank to take decided fund (PetroviÄ‡ and VukoviÄ‡, 2016). In this case if the bank satisfied with company's conditions then it will give needed fund to the company. The bank generally provide fund in some forms, like; Loans and advances, Overdraft, and Cash credit etc. This source also helpful in fulfil company's working capital needs.
- Co-operative Banks: Co-operative banks are also providing specific funds and loans to the companies or business on the basis of their terms and condition. So, here is this is also great short term finance source for the company. In which the company need to select only that co-operative banks which providing fund on minimum interest rate. These banks are also providing facility of fund for fulfil needs of the working capital.
- Customers' Advances: This is also effective option for the Zylla. In which the company need to take advance money from the customers when they buy its products and services. The company is responsible for return that money or fund to the customers after short time period, but it is a favourable way to rise fund for acquisition of the Ferry and also for fulfilment of working capital needs.
Long Term Sources
- Public Deposits: In the public deposits, public deposit their additional money and savings in the high valued companies (Pilbeam, 2018). In this situation these companies return that money them after long period with decided interest rate. So, for rise fund from long term financial sources, this is good option for the company. With this fund the Zylla can easily run their all operations by fulfil its working capital needs. It is also able to acquire the Ferry by rising fund from this financial source.
- Financial Institutions: In the market there are currently many financial institutions are working for providing fund to the many businesses and companies on the effective and favourable interest rates. Specially for long term. In this case this is one of the best long term sources of for the company to rise necessary fund. With this the company can easily cover its all business needs relating to the acquisition and working capital.
- Term Loans: Term loans also suitable option for the company to rise their needed fund. Term loans are basically provided by the all banks, like, development, commercial, and co-operative. These banks provide fund for the long time period like five to seven years. Mostly time period is depends on the banks' terms and conditions (Martin and Hofmann, 2017). In this case the finance management at the Zylla need to cover the market research for analyse which bank offering the best interest rate for long term finance. Then choose bank according to the own choice for arrange specific fund within the company for working capital needs and the Ferry's acquisition.
Also Read:- Advanced Financial Reporting & Regulation Sample
Investment Appraisal Techniques
There are three major investment appraisal techniques are mentioned below;
Account Rate of Return (ARR): This is basically “Return on Investment” technique. It is useful for the company to gain effective target return. The ARR is clarified as a percentage of the investment earnings in a project. The businesses are using it for achieve their accounting profitability objective (Katabi and Dimoso, 2018). Here is one disadvantage of this technique is, it completely ignores the cash flow within companies. The account rate of return technique is also considering as a time-consuming technique by many big organizations.
Net Present Value (NPV): It is totally work on the basis of company's objective of wealth. For example; the company producing its products and services by using present and existing resources. In this case the net present value is calculated by discounting total outflows and inflows of cash on the basis of chosen percentage. The NPV is also known as capital budgeting method. With the help of this the companies easily take their important decisions related to the finance and working capital.
Payback Period: The payback technique is important in the make balance between cash inflow and cash outflow. It basically considers cash inflow in the investment of capital for equal the outflows of cash (Riley, Fleming and Gallegos, 2016). With the help of payback period technique the company is able to recover its invested capital in the any project.
Here is the payback period is too suitable investment appraisal technique for the Zylla company which it needs to use for the acquisition of the new Ferry. The main reason behind this statement is the payback technique is easy to apply in the business environment. The use is also not complicated, because high skills are not required for use it. In this technique there are zero assumptions about interest rates of the future. It will perfectly maintain the cash inflows and outflows factors while the company use its fund for operation and also for acquire the new Ferry.
It can be concluded that there are various sources of finance for the Zylla company which are based on short term and long term period. The company able to choose any source from mentioned financial sources to fulfil its working capital needs. These sources are also helpful for the company to arrange or rise specific fund for the acquisition of the new Ferry. Here is three investment appraisal techniques are also discussed. In these the payback period is the most suitable technique for the Zylla which it needs to use while regulate operation and acquisition of the Ferry.
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