Finance Organization and Long-Term Planning: Analyze the potential costs and benefits of each option

Assignment 1

Discussion

Finance Organization and Long-Term Planning

Considering Genesis Energy’s aggressive growth plan, Sensible Essentials suggested that its client should broaden the scope of financing beyond short-term loans and consider long-term financing options. These options would greatly enhance the ability of the operations management team to fund the capital investments and growth in operating expenses.

Acting as the finance expert for Sensible Essentials, respond to the following:

  • Determine the cost of debt and equity for Genesis Energy and its weighted average cost of capital. Go to www.yahoofinance.com and look under SEC filings. Use a US publicly traded company, such as Apple, Google, DuPont, etc.
  • Identify the sources of long-term financing for Genesis Energy.
  • Analyze the potential costs and benefits of each option.
  • Explain how relative risk (from the investor’s perspective) impacts the cost of capital for Genesis Energy.
  • Determine the cost of debt and equity for Genesis Energy and its weighted average cost of capital.
  • Calculate the required rate of return for Genesis Energy using the capital asset pricing model (CAPM). What is the required return for Genesis Energy shareholders?

Write your initial response. Your response should be thorough and address all components of the discussion question in detail,

Do the following when responding to your peers:

  • Read your peers’ answers.
  • Provide substantive comments by
    • contributing new, relevant information from course readings, Web sites, or other sources;
    • building on the remarks or questions of others; or
    • sharing practical examples of key concepts from your professional or personal experiences
  • Respond to feedback on your posting and provide feedback to other students on their ideas.
  • Make sure your writing
    • is clear, concise, and organized;
    • demonstrates ethical scholarship in accurate representation and attribution of sources

 

Assignment 2: Genesis Energy Cash Position Analysis

The Genesis Energy 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 Energy to have a reliable source of funds for both short-term and long-term needs.

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 2 year 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.