Exhibit 1 Sources and Uses of Funds, November 30, 1978-August 13,

1979 (thousands of dollars)

Sources
Increase in bank debt $1,000
Increase in retained earnings 883
Decrease in cash 961
Increase in customer advances 726
Increase in accounts payable 600
Decrease in accounts receivable 561
Increase in taxes payable 329
Decrease in net fixed assets 92
Decrease in prepaid expenses 20
Total sources $5,172
Uses
Stock repurchase $3,000
Increase in inventories 2,163
Decrease in accruals 9
Total uses $5,172
 Hampton Machine Tool
Company
• Why can’t a profitable firm like Hampton repay its loan
on time and why does it need more bank financing?
(Hints: Prepare a cash flow statement and get the
answer)
• Whether Hampton will be able to repay a larger loan in
December? (Hints: Prepare a cash budget)
• Should the bank make the loan? Why or why not?
• Any suggestion regarding the loan?
•  
• Exhibit 1. Cash Flow Statement
Cash flow from operating activities:
1. Increase in retained earnings 883
2. Add, Depreciation (3090 – 2998) 92
975
Add: Decrease in A/R (1245 – 684) 561
Decrease in Prepaid expense (62 – 42) 20
Increase in A/P (948 – 348) 600
Increase in Tax Payable (479 – 150) 329
Increase in Customer Adv (1566 – 840) 726
2236
3211
Less: Increase in inventory (4764 – 2601) 2163
Decrease in Accruals (561 – 552) 9
2172
CASH FLOW FROM OPERATING 1039
ACTIVITIES

Cash Flow from Financing Activities: 1000

Loan received 3000 -2000
Less: Repurchase of shares
 Exhibit 2 Project Cash Budget, September 1979 through January 1980
(thousands of dollars)

September October November December January

Receipts
Collections of receivablesa $ 684 $ 1,323b $ 779c $ 1,604 $ 2,265
Bank loan 350
Total cash inflow $684 $ 1,673 $ 779 $ 1,604 $ 2,265
Expenditures
Payments of account payabled $ 948 $ 600 $ 600 $ 600 $ 600
Other operating outlays 400 400 400 400 400
Capital expenditures 350
Tax payments 181 181
Interest payments-bank loan 15 15 20 20
Principal payments-bank loan 1,350
Dividends 150
Total cash outflow $ 1,544 $ 1,365 $ 1,020 $ 2,701 $ 1,000
Beginning cash balance $ 1,559 $ 699 $ 1,007 $ 766 $ (331)
Net monthly cash flow (860) 308 (241) (1,097) 1,265
Ending cash balance $ 699 $ 1,007 $ 766 $ (331) $ 934

Note: Other assumptions sated in the case.

a
Assumes a 30-day collection period.
b
$2,163 minus $840 advance.
c
$1,505 minus $726 advance.
d
Assumes a 30-day payable period.