Prepare assumptions that will drive the planning process

Assignment Help Operation Management
Reference no: EM131446301

Assignment: 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 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.

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. Please use the sales projections provided in the template. See "Download" in item 1 below.

2. Other cash receipt: Rental income $15,000 per month for Y1 and 20,000 for Y2.

3. Production material: The production manager forecasted material cost based on cost quotes from reliable vendors, the average of which is 45 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: Six percent of sales

6. General and administrative expense: 18 percent of sales

7. Interest payments: $10,000-Payable in December Y1 and $0 payable in December Y2.

8. Tax payments: $15,000-Quarterly due on 1st of April, July, October, and January

9. Minimum cash balance desired: $25,000 per month

10. Cash balance start of month (December): $10,000

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 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.

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.

Reference no: EM131446301

Provide a convincing argument about what you can contribute

Your organization-a company that manufactures automobile brake pads-is about to introduce lean concepts into its operations in order to be more competitive with foreign manu

Capacity to perform services to customers demand

Customer demand for services is generally not uniform during a day, week, or other period of time. What strategies can be used by service businesses to better match the compan

What specific customer service measures

Describe the advantages of using a balanced scorecard to measure and control organizational performance. Suppose you created a balanced scorecard for Walmart. What specific cu

What are the steps to conduct a hypothesis test

What are the steps to conduct a hypothesis test? How does a researcher determine which statistical test to conduct? How does a researcher determine which level of significance

Social services department

You are the new manager of the Social Services Department of a small, 18-bed rural hospital within the Bright Road Health Care System. As a member of the ethics committee for

Remarks of various functional managers

How would you examine if there is any merit in the remarks of various functional managers and what, in your opinion, could be the reasons for different Managerial thinking in

Confine your analysis to given data

Elucidate however, prepare a cash budget for June. Confine your analysis to given data. Ignore income taxes also o r possible items which might affect cash. Sales proceeds

The authors claims of copyright infringement

In addition, please include your view on the issue of on-line file sharing vs the authors claims of copyright infringement and loss of royalties. Is it right to download music

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd