Assignment 2: Course Project—Genesis Cash Budget ReportThe Genesis operations management team is now preparing to implement the operating expansion plan….

Assignment 2: Course Project—Genesis Cash Budget Report

The Genesis 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 to have a reliable source of funds for both short-term and long-term needs.
One of Genesis’s potential lenders tells the team that in order to be considered as a viable customer, Genesis 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 can meet the loan repayment terms. Genesis’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 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 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 Corporation expanding into new overseas markets, the operations management team has been asked to prepare an executive summary with supporting details for Genesis’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.
Other cash receipt: Rental income $15,000 per month.
Production material: The production manager forecasted material cost based on cost quotes from reliable vendors, the average of which is 50 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: Five percent of sales
General and administrative expense: Twenty percent of sales
Interest payments: Payable in December – $75, 000
Tax payments: Quarterly due 15th of April, July, October, and January – $15,000
Minimum cash balance desired: – $ 25,000 per month
Cash balance start of month (December):$15,000
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 a detailed company cash budget for the forthcoming year. Summarize the sources and uses of cash, and identify the external financing needs for the forthcoming two (2) years.
Cash Budget
Download this Excel spreadsheet to view the company’s cash budget. You will calculate the company’s cash budget for the forthcoming 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:
a) Your recommended financing solution and cost to the firm: If Genesis 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?

Sheet1

Dec March June Sept Dec

700,000

500,000

External Financing Balance

Genesis Cash Budget ($000)
Dec Jan Feb March April May June July Aug Sept Oct Nov
Cash Inflow
Sales (Reference only) 300,000 200,000 350,000 400,000 500,000 550,000 700,000 650,000 900,000 850,000 750,000 150,000 190,000 3,000,000 2,400,000
Cash Collections on Sales
20% in month of sale
30% in first month after sale
35% in second month after sale
40% in third month after sale
Other Case Receipts
Total Cash Inflow
Cash Outflows
Material Purchases (reference only)
Payment for Material Purchase
100% in month after purchase
Other Cash Payments
Other production cost 30%
of Material cost paid month
after Purchase
Selling and Marketing Expense
General and Adminstrative expenses
Interest Payment
Tax Payment
Dividend Payment
Total Cash Outlfows
Net Cash Gain/(Loss)
Cash Flow Summary
Cash Balance start of the month
Net Cash Gain/loss
Cash Balance at end of month
Minium cash Balance desired
Surplus cash (deficit)
External Financing Summary
External Financing Balance
at start of month
New Financing Required
(negative amount from cash
suplus (deficit)
External Financing Requirement

Sheet2

Sheet3

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