HAMPTON MACHINE TOOL COMPANY

COMPANY PROFILE
 Founded in 1915.  Customer base – Defence and

Automobile manufacturers.  Record breaking profits in 1965-1970.  Experienced a slowdown in 70’s.  No debt for the past 10 years.

Problem Area
 Renewal of the $1mn loan.  Monthly interest of 1.5% on principal.  Requirement of additional loan of

$350,000 @ 1.5% monthly interest.  Additional loan must to upgrade its machinery.  Principal has to be paid at the end of Dec1979.  To provide for dividends of $150,000.

ESSENTIALS FOR HAMPTON
 To repay renewed $1mn loan by Dec-79.  Upgradation for operational efficiency.  To pay dividends.

ACTION PLAN
 Prepare suitable alternative cash budgets.  Assumptions.  Analysis of Cash Flows.

SUGGESTIONS
 Change in billing policy for financing future

projects.  Billing as percentage of completion on monthly basis – GAAP.  Resell some of the earlier bought stock to generate liquidity.  Invest idle cash in some fixed return saving schemes.

CONCLUSION
According to our analysis:  Cannot repay the loan by end of 1979 as per current terms and conditions.  However, still it is a profitable venture.  Loan may be granted with renewed terms and conditions.

Related Interests