wk3 assignment Brilliant Answers

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 monthly  cash 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 2 year 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.

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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.

Sales: The marketing expert and the newly created customer service  personnel developed sales projections based on historical data and  forecast research. Please use the sales projections provided in the  template. See “Download” in item 1 below.
Other cash receipt: Rental income $15,000 per month for Y1 and 20,000 for Y2.
Production material: The production manager forecasted material cost  based on cost quotes from reliable vendors, the average of which is 45  percent of sales
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
Selling and marketing expense: Six percent of sales
General and administrative expense: 18 percent of sales
Interest payments: $10,000—Payable in December Y1 and $0 payable in December Y2.
Tax payments: $15,000—Quarterly due on 1st of April, July, October, and January
Minimum cash balance desired: $25,000 per month
Cash balance start of month (December): $10,000
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
Dividend payment: None

Based on this information, do the following:

Using the Cash Budget spreadsheet, calculate detailed company cash  budgets for the forthcoming and subsequent year. Summarize the sources  and uses of cash, and identify the external financing needs for both the  forthcoming and subsequent years.

Download  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.
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: 

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?
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?

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