The Genesis Operations Management Team Is Now Preparing To ✓ Solved

The Genesis operations management team is now preparing to implement

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 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. NOTE: The Excel Spreadsheet Breakdown 10% immediately (no delay); month 1 - 25% and that is within 30 days; month 2 - 35% and that is within 60 days and month 3 - 30% which is within the 90-day mark (barely but it works) which add up to 100% within 90 days.

Paper For Above Instructions

The expansion of Genesis Corporation into international markets necessitates a comprehensive financial planning strategy, particularly focusing on cash flow management. With historical cash flow data and the nature of operations taken into consideration, a monthly cash budget for the current year and a quarterly budget for the next year become essential documentation for securing the required financial backing from lenders. The strategic expansion plan requires addressing the firm's funding needs to maintain stable operations while successfully mitigating financial risks associated with new market conditions.

Understanding Cash Flow Dynamics

Successful cash flow management is crucial for Genesis, particularly when entering foreign markets where economic conditions and customer purchasing behaviors may vary significantly. The critical components that will drive the cash budget include cash inflow sources such as sales revenue and rental income, alongside cash outflow elements, which comprise production costs, operating expenses, and debt service obligations.

Sales Forecast and Estimations

The sales forecast project is based on historical sales data and market research. As stated, the marketing team, together with customer service personnel, has formulated sales projections, which serve as the primary revenue source for Genesis. Projected sales will subsequently inform the estimate for production material costs, which account for approximately 50% of sales revenue, and other associated costs.

Cash Budget Structure

In constructing the cash budget, the following breakdown of revenues and expenses is necessary for each month and quarter. The components of cash inflows will include the estimated sales revenue, along with the steady receipt of $15,000 per month from rental income. Conversely, the cash outflows will consist of production material costs, variable operating costs (selling and marketing expenses at 5% of sales, and general administrative expenses at 20% of sales), and fixed payments such as interest and tax payments.

Cash Budget Calculation

The monthly cash budget is summarized in the table below (Note: Actual numerical values would be calculated based on assumed sales figures and formatted into an Excel sheet for detailed analysis).

• Cash Inflows:
  • Sales Revenue
  • Rental Income: $15,000
• Cash Outflows:
  • Production Material Costs: 50% of Sales Revenue
  • Other Production Costs: 30% of Material Costs (incurred in the following month)
  • Selling and Marketing Expenses: 5% of Sales Revenue
  • General and Administrative Expense: 20% of Sales Revenue
  • Interest Payments: $75,000 in December
  • Quarterly Tax Payments: $15,000 due in April, July, October, and January

Financing Needs and Sources

To cover any anticipated cash deficits as portrayed in the budget, an exploration of financing options becomes paramount. A comparative analysis of interest rates for short-term loans (8%), long-term debt (9%), and equity financing (10%) will inform strategic decision-making. This analysis should aim to strike a balanced financing mix— effectively evaluating the cost implications and impact on cash flow associated with each financing option.

Conclusion and Executive Summary Recommendations

In conclusion, the operations management team at Genesis Corporation must diligently assess historical data while conducting a thorough analysis to make viable assumptions leading to sound cash flow management. The calculated cash budget shall not only summarize the inflows and outflows but will also determine the required levels of external financing. The strategic use of this detailed financial plan will aid in fulfilling the organization's ambitions of successful expansion into overseas markets while establishing favorable terms with potential lenders.

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