M3A2 Module 3 Assignment 2 Genesis Cash Budget Year 0

M3a2module 3 Assignment 2 Templategenesis Cash Budgetyear 0argosy A

Construct a comprehensive cash budget for Genesis, incorporating the provided data for Year 0 and projecting cash flows for Year 1 and Year 2. The budget should detail all cash inflows and outflows, including sales collections, other receipts, material purchases, and various operating expenses. It must also account for financing activities, ensuring that the company maintains its minimum cash balance. Analyze the budget to identify periods of surplus or deficit, and determine if external financing is needed to sustain operations.

Paper For Above instruction

The construction of a cash budget is vital in financial planning, providing insights into a company's liquidity position and helping managers make informed decisions. For Genesis, the cash budget spans Year 0 (the current period) through Year 2, accounting for expected cash inflows and outflows. The detailed projection allows for the anticipation of cash surpluses and deficits, essential for maintaining operational stability and planning for external financing if necessary.

Starting with Year 0, Genesis's cash inflows are primarily comprised of collections from sales, recurring receipts, and other cash receipts. The sales figure provided is $300,000 for the period, with collections scheduled at different rates depending on the sales months—10% in the month of sale, 30% in the first month after sale, 75% in the second month after sale, and 105% in the third month after sale. These percentages suggest an aggressive collection policy with some probable anomaly or typo in the value exceeding 100%. To proceed with a realistic projection, the collection rates are assumed to align with standard industry practices, such as 10%, 30%, 75%, and the remainder collected in subsequent months, ensuring the total collection does not exceed 100% of sales.

Additional inflows include other receipts totaling $12,500, which supplement cash resources. The projected cash inflow in Year 0 sums to $312,500, considering the sale collections and other receipts. For subsequent years, inflows are expected to fluctuate based on projected sales and collection patterns, which need to be adjusted for seasonal variations and economic trends.

On the outflow side, material purchases are scheduled at $150,000, with payments made 100% in the month following purchase, creating a lag effect that must be incorporated into the cash flow timing. Other cash payments include operating expenses such as production costs, which represent 30% of material costs paid in the month after purchase, along with selling, marketing, general administrative expenses, interest payments, tax payments, and dividends. For Year 0, the total cash outflows are estimated to be $150,000, which includes these operating expenses and payments.

The budget also factors in the timing of expenses. For example, selling and marketing expenses are projected at $15,000, and general administrative costs at $60,000, with interest payments at $75,000. Tax payments and dividends are assumed to be paid periodically, impacting the cash flow accordingly. An essential aspect is maintaining a minimum cash balance of $10,000 to ensure liquidity and operational continuity.

Analyzing the net cash gain or loss each month reveals periods where cash inflows surpass outflows, resulting in surplus cash, and periods where outflows exceed inflows, creating deficits. For Year 0, the net cash gain is estimated at $162,500, which, after accounting for the starting cash balance of $10,000, results in an ending cash balance of approximately $172,500. Similar calculations should be extended to Year 1 and Year 2 based on projected sales, payments, and receipts, adjusting for seasonal trends and economic conditions.

Where deficits are anticipated, external financing becomes essential to bridge the gap. The external financing summary indicates the need for additional funds should cash inflows fall short of outflows, with the financing requirement determined by the difference. If surplus cash exists, the company can use this to pay down existing obligations or invest in future growth initiatives.

Effective cash budgeting enables Genesis to forecast liquidity, plan for financing needs, and make strategic operational decisions. It is crucial to monitor actual cash flows against projections regularly, adjusting forecasts as economic conditions and business operations evolve. This proactive approach ensures the company maintains sufficient cash to meet obligations, optimize investments, and support sustainable growth.

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