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Target feedback date: in 3 weeks Task 4: Business Scenario for Individual Report Introduction
You are a finance officer at Z.y,61,Limited. The company operates a number of ferries that provide river crossing services for people, vehicles and goods across a river. Business is good and there are prospects for expansion. The management has made a decision to buy a new ferry to cater for the increased demand.
The company needs funds both for the acquisition of the ferry and to pay for the working capital requirements of the expansion. For this reason, there is a need to access short term as well as long term sources of funds. The company’s Director of Finance has asked you to produce a report, which she will use as the basis for advising the board on the viability of acquiring the new ferry and to seek approval to look for sources of funding for the company’s expansion plans.
Information on the new ferry
Ferries are normally operated profitably for five years after which they are decommissioned. They are then sold for approximately 10 percent of its cost. The estimated data on the proposed new ferry are as follows:
Discount factor £000 Cost of ferry 1.000 (150,000) Cash inflows for five years: Year 1 0.971 55,230 Year 2 0.943 70,045 Year 3 0.915 88,375 Year 4 0.888 79,870 Year 5 0.863 57,555 Sale of decommissioned ferry in year 5 0.863 45,000
The company’s borrowing rate, which is the same as its cost of capital, is three percent. The discount factors for the cost of capital is provided in the above data for the relevant years.
What you must do
Write a report of one thousand words on behalf of the Director of Finance for presentation to the Board of Directors which must cover the following:
1. Short term and long term sources of finance to fund the acquisition of the ferry and for the company’s working capital needs, and 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 using the data above.
Your report must be appropriately structured. The following is suggested as a guide of how a good report should be:
• An introductory section williniiiirmiplimialipiimpany and what the report is
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