Importance of Finance Management In an Company

MAIN BODY

1. Short Term and Long Term Sources of Finance to Fund The Acquisition of The Ferry and For The Company's Working Capital Needs

There are different kinds of sources of funds that are needed by business entities in order to acquire funds. Mainly, these sources of funds can be categorized into two parts which are as follows:

(i) Short-Term Source of Funds-

These are types of sources of funds that are acquired by business entities for a short time period of less than one year. Basically, short term funds are needed in order to fulfill working capital requirements. Such as Zylla Limited company can acquire funds from below mentioned short term funds:

• Bank credit- Commercial banks provide short term funds to companies which is known as bank credit. This can be provided by banks in many ways such as:

* Loans- This is granted to companies against security of assets. With the help of it, this becomes easier for business entities to acquire funds at a lower cost. Such as Zylla Limited company can acquire short-term loans quickly term and can fulfill its own working capital requirements.

* Overdraft- It is a type of facility that is provided by banks to the customer to withdraw funds in the excess balance of their bank account. In Zylla Limited company, they can get short term funds to make payments for day-to-day activities after acquiring the ferry.

• Commercial paper- It is a type of short term financing tool which is used by companies with higher credit ratings to acquire funds from the market (Jerzmanowski, 2017). This is suitable for those business entities which have a better reputation in the market. Like in the above company, they can raise short term funds by this alternative for making payment of short term debts.

 (ii) Long Term Source of Funds-

These are types of sources of funds that are acquired by business entities for a long time period of more than one year. Basically, long term funds are needed in order to do large expenses. Such as Zylla Limited company can acquire funds from below mentioned long term funds:

• Retained earnings- It is a type of source of funds that is generated internally. This becomes possible when companies do not distribute whole profits to shareholders (Prizzon, Greenhill, and Mustapha, 2017). Such as in the above company can produce retained earnings and it may help in order to fulfill long-term funds needs.
• Loan from financial institutions- This is a main source of long term funds in which companies can take loans from major financial institutions. Zylla Limited company can get long term financial assistance by taking long period loans from banks.

2. An Evaluation of Various Investment Appraisal Techniques and Recommending The Viability of The Acquisition and Operation of The New Ferry Based on One Suitable Investment Appraisal Technique

There is a vital range of investment appraisal techniques that are being used by companies in order to make a proper evaluation of any project (Throsby, 2016). Herein, some types of techniques of investment appraisal are mentioned such as:

• Payback Period Method- It can be defined as a technique in which an estimated time period is calculated which may occur in order to recover debt amount. There is a particular formula to compute the payback period which is as follows:

Payback period = Initial investment/cash flow

or

 Accounting Rate of Return- It is a type of technique that is used to measure the expected amount of profit from an investment. This is calculated by the below-mentioned formula that is as:

ARR= (Average annual profit after tax / initial investment) x 100

• Net Present Value- This is one of the most used methods of investment appraisal (Alkaraan, 2015). Basically, net present value is the addition of discounted cash in & outflows regarding the project. It is computed by below-mentioned formula:

NPV= Discounted cash flow- initial investment

• Internal Rate of Return- This is defined as a discounting rate on which a company can generate profit or may face loss. It is computed by the below-mentioned formula:

Evaluation of Viability of Ferry:

Initial Investment = 150000

NPV = 321138.41-150000

= 171138.41

Analysis- In accordance with the net present value of the ferry, it can be found that its current value is 171138.41 which shows that this may be beneficial for the above company if they acquire it. This is so because the produced outcome is positive. Thus, they should acquire the ferry.

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CONCLUSION

On the basis of the above project report, it has been concluded that financial needs can be fulfilled with the help of different sources of funds. The report concludes with both short and long term source of finance such as commercial paper, retained earnings and many more. In addition, a further part of the report concludes with various methods of investment appraisal such as payback period, net present value method, etc. In the end, this can be articulated that the acquisition of ferry will be beneficial for the above company. To get more details about online assignment help ask our experts.

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