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.
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 Energys 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: $10,000Payable in December Y1 and $0 payable in December Y2.
Tax payments: $15,000Quarterly 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 companys cash budget. You will calculate the companys 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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