(2A1): Short-Term Financing Needs
- After reading your report, as well as comments by others on the team, the Genesis Energy team began to understand the importance of cash flow and financing in high-growth scenarios. The Genesis Energy accountant suggested that the focus should be on developing a financial strategy that would ensure operational needs are met through short-term financing. The Genesis Energy team instructed Sensible Essentials to explain in basic terms the factors and mechanics necessary to determine short-term financing needs.
As the finance expert for Sensible Essentials, do the following:
- Explain the concept of working capital and its importance to Genesis Energy.
- Describe the mechanism and methodology used to ensure that operational needs are met through short-term financing. Explain why this methodology is important to Genesis Energy.
- Explain how working capital represents the assets that are needed to carry out the day-to-day operation and how working capital can act as a source of financing or increase the need for financing.
In your response, be sure to consider the time value of money and the relative advantages and disadvantages of short-term loans versus internally generated funds.
- Please complete the mini case found on pages 171–172 of your textbook, Brigham and Gerhardt.
Write your initial response in 1 to 2 pages. (SPA Style)
(2A2): Time Value of Money
When the Genesis Energy and Sensible Essential teams held their weekly meeting, the time value of money and its applicability yielded an extremely stimulating discussion. However, most of the team members from Genesis Energy were very perplexed. Sensible Essentials decided the most expedient way to demonstrate how interest rates as well as time impact the value of money was to use examples. You have been asked to prepare a report analyzing your findings of the three example calculations listed below.
In this assignment, you will do the following:
- Calculate the future value of $100,000 ten years from now based on the following annual interest rates:
- Calculate the present value of a stream of cash flows based on a discount rate of 8%. Annual cash flow is as follows:
- Year 1 = $100,000
- Year 2 = $150,000
- Year 3 = $200,000
- Year 4 = $200,000
- Year 5 = $150,000
- Years 6-10 = $100,000
- Calculate the present value of the cash flow stream in problem 2 with the following interest rates:
- Year 1 = 8%
- Year 2 = 6%
- Year 3 = 10%
- Year 4 = 4%
- Year 5 = 6%
- Years 6-10 = 4
Perform your calculations in an Excel spreadsheet. Copy the calculations in a Word document. In addition, write a 2- to 3-page executive summary in Word format. Your summary should reflect a proper