Assignment 2: Required Assignment 1—Genesis Energy Cash Position Analysis

Assignment 2: Required Assignment 1—Genesis
Energy Cash Position Analysis
The Genesis Energy operations management team is now
preparing to implement the operating expansion plan. Previously, the firm’s
cash position did not pose a challenge. However, the planned foreign
expansion requires Genesis Energy to have a reliable source of funds for both
short-term and long-term needs.
One of Genesis Energy’s potential lenders tells the team
that in order to be considered as a viable customer, Genesis Energy must
prepare and submit a monthly cash budget for the current year and a quarterly
budget for the subsequent year. The lender will review the cash budget and
determine whether or not Genesis Energy can meet the loan repayment terms.
Genesis Energy’s ability to repay the loan depends not only on sales and
expenses but also on how quickly the company can collect payment from
customers and how well it manages its supplier terms and other operating
expenses. The Genesis Energy team members agreed that being fully prepared
with factual data would allow them to maximize their position as well as
negotiate favorable financing terms.
The Genesis Energy management team held a brainstorming
session to chart a plan of action, which is detailed here.
•
Evaluate historical data and prepare
assumptions that will drive the planning process.
•
Produce a detailed cash budget that
summarizes cash inflow, outflow, and financing needs.
•
Identify and compare interest rates, both
short-term and long-term, using debt and equity.
•
Analyze the financing mix (short/long) and
the cost associated with the recommendation.
Since this expansion is critical to Genesis Energy
expanding into new overseas markets, the operations management team has been
asked to prepare an executive summary with supporting details for Genesis
Energy’s senior executives.
Working over a weekend, the management team developed
realistic assumptions to construct a working capital budget.

1
Sales: The marketing expert and the newly
created customer service personnel developed sales projections based on
historical data and forecast research

2
Other cash receipt: Rental income $15,000 per
month
3
Production material: The production manager
forecasted material cost based on cost quotes from reliable vendors, the
average of which is 50 percent of sales
4
Other production cost: Based on historical
cost data, this cost on an average is 30 percent of the material cost and
occurs in the month after material purchase
5
Selling and marketing expense: Five percent
of sales
6
General and administrative expense: Twenty
percent of sales
7
Interest payments: $75,000—Payable in
December
8
Tax payments: $15,000—Quarterly due on 15th
of April, July, October, and January
9
Minimum cash balance desired: $25,000 per
month
10
Cash balance start of month (December):
$15,000
11
Available short-term annual interest rate is
8 percent, long-term debt rate is 9 percent, and long-term equity is 10
percent. All funds would be available the first month when the firm
encounters a deficit
12
Dividend payment: None

Based on this information, do the following:

1
Using the Cash Budget spreadsheet, calculate
detailed company cash budgets for the forthcoming and subsequent years.
Summarize the sources and uses of cash, and identify the external financing
needs for both the forthcoming and subsequent years.
2
.next.ecollege.com/pub/content/fd9d28d4-cb87-4c44-88de-fa7dda5e8280/AUO_B6022_M3_A2_Cash_Budget_5w.xlsx”>Download (See Help (a)) this Excel spreadsheet to
view the company’s cash budget. You will calculate the company’s monthly cash
budget for the forthcoming year and quarterly budget for the subsequent year
using this information.
2
In an executive-level report, summarize the
company’s financing needs for the forecast period and provide your recommendations
for financing the planned activities. Be sure to comment on the following:
a
Your recommended financing solution and cost
to the firm: If Genesis Energy needs operating cash, how should it fund this
need? Are there internal policy changes with regard to collections or
payables management you would recommend? What types of external financing are
available?
b
Your concerns associated with the firm’s cash
budget. Is this a sign of weak sales performance or poor cost control? Why or
why not?

Write a 7-page paper in Word format. Apply APA standards
to citation of sources.

Assignment 2 Grading Criteria

Maximum Points

Calculation of a detailed company cash budget for the
upcoming year is complete and correct.

All inflow and outflow calculations are correct.

Summary of the sources and uses of cash, and
identification of the external financing needs for the upcoming year is
complete and correct.

48

Explanation how the assumed budget of this project will
effect dividends for shareholders is clear, specific, and complete. The
explanation includes all factors that the firm considers in
dividend-decision making.

32

Recommended financing solution and cost to the firm are
clear, complete, and correct. Financing solution includes short-term debt,
long-term debt, or even equity.

44

Explanation of concerns associated with the firm’s cash
budget and if it is a sign of weak sales performance or poor cost control
is clear, complete, and correct.

48

Wrote in a clear, concise, and organized manner;
demonstrated ethical scholarship in accurate representation and attribution
of sources; and displayed accurate spelling, grammar, and punctuation.

28

200