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. 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: $75,000—Payable in December Tax payments: $15,000—Quarterly due on 15th of April, July, October, and January 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 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. 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? 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. 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: $75,000—Payable in December Tax payments: $15,000—Quarterly due on 15th of April, July, October, and January 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 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. use the 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?

What measures would you use in a business like Amazon.com to evaluate the company’s performance? The supply chain? Chapter 12 page 381.

Instructions: Initial post should be at least 250 words, APA format,and with references too.  

Task Name:	Phase 4 Individual Project
Deliverable Length:	Word document of 700–1,000 words with attached Excel Spreadsheet showing calculations
Details:	Weekly tasks or assignments (Individual or Group Projects) will be due by Monday, and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time. Key Assignment Draft Your next assignment as a financial management intern is to apply the knowledge that you acquired while engaging in the cost of capital discussion that you had with your colleagues. In this task, you will be calculating the weighted cost of capital for a firm using the book value of the components and the concepts presented in this phase. Using the most current annual financial statements from the company you analyzed in Phase 1, determine the percentage of the firm’s assets that are currently be financed with debt (total liabilities), preferred stock, and common stock (common equity). It is very possible that your firm will have very little or no preferred stock, so in this class, the percent would be “zero.” Your ratios should add up to 100%. You will also need to calculate the firm’s average tax rate using the income tax expense divided by the firm’s income before taxes. Use the following tables: Company Total Assets Total Liabilities Total Preferred Stock Total Common Equity Dollar Value         % of Assets           Company Income before Tax Income Tax Expense Average Tax Rate (%)           The first component to determine is the cost of debt. You mentor suggests using the Web site that you used in the previous Phase to find the pretax yield-to-maturity of a bond with at least 5 years left before maturity. Using the following table, calculate the firm’s after-tax cost of debt: Yield to Maturity 1 – Average Tax Rate After-tax Cost of Debt         Now you will need to calculate the cost of preferred stock. You can use the following table: Annual Dividend Current Value of Preferred Stock Cost of Preferred Stock (%)         To calculate the cost of common equity, you can use the CAPM model. Using current stock data, the yield on the 5-year treasury bond, and the return on the market calculated in Phase 2, you can calculate the cost of common equity using the following table: 5-year Treasury Bond Yield (risk-free rate) Stock’s Beta Return on the Top 500 Stocks (market return) Cost of Common Equity           Now, you can use the cost and ratios from above to calculate the firm’s weighted average cost of capital (WACC) using the following table:   After-Tax Cost of Debt Cost of Preferred Stock Cost of Common Equity WACC Unweighted Cost         Weight of Component         Weighted Cost of Component           After completing the required calculations, explain your results in a Word document, and attach the spreadsheet showing your work. Be sure to explain the following: How would you expect the weighted average cost of capital (WACC) to differ if you had used market values of equity rather than the book value of equity, and why? What would you expect would happen to the cost of equity if you had to raise it by selling new equity, and why? If the after-tax cost of debt is always less expensive than equity, why don’t firms use more debt and less equity? What are some of the advantages and disadvantages of raising capital by using debt? How would “floatation costs” impacted the WACC, and how could they have been incorporated in the formula? Note: You can find information about the top 500 stocks at this Web site. (http://finance.yahoo.com/echarts?s=%5egspc+interactive#symbol=^gspc;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;”) Reference S&P 500 index chart. (2014). Retrieved from the Yahoo! Finance Web site: http://finance.yahoo.com/echarts?s=%5egspc+interactive#symbol=^gspc;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=; Be sure to document your paper with in-text citations, credible sources, and list of references used in proper APA format.

 

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