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
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