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

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

Working over a weekend, the management team developed realistic
assumptions to construct a working capital budget.

  1. Sales: The marketing expert and the newly created customer service personnel
    developed sales projections based on historical data and forecast research.
  2. Other cash receipt: Rental income $15,000 per month.
  3. Production material: The production manager forecasted material cost based
    on cost quotes from reliable vendors, the average of which is 50 percent of
  4. 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.
  5. Selling and marketing expense: Five percent of sales
  6. General and administrative expense: Twenty percent of sales
  7. Interest payments: Payable in December – $75, 000
  8. Tax payments: Quarterly due 15th of April, July, October, and January –
  9. Minimum cash balance desired: – $ 25,000 per month
  10. Cash balance start of month (December):$15,000
  11. 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.
  12. 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.

Cash Budget

Downloadthis 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:

    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?

Write a 7-page paper in Word format. Apply APA standards to
citation of sources.