Hampton Machine Tool Essay

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Hampton Machine Tool Company, a machine tool manufacturer, was founded in 1915. Hampton's customer base is made up primarily of military aircraft manufactures and automobile manufactures in the St. Louis area. Hampton felt the boom in the 1960s with record setting profits in the mid to late 1960s. Hampton slowed down in the 1970s with the withdrawal from Vietnam War and the oil embargo. Hampton stabilized by the late 1970s and now has a larger market share as other competitors were unable to make it through the tough times. It is now September 14, 1979 Hampton has asked for an extension to the end December 1979 on the $1 million loan they took out from the St. Louis National Bank at the end of December 1978. The loan was originally …show more content…
Not paying the dividends is the number one thing Hampton must remove from their current cash budget plan.
They can start to repay some of the principle as soon as possible to reduce the interest payments. This will help reduce the amount of interest paid in total (Exhibit 2). While this solution does not eliminate the problem of still being unable to repay the full loan, they are able to lessen their cash shortage. The assumptions I used for this budget was that approximately $500,000 on hand is all they will need from month to month. I also assumed the $500,000 on hand is not earning interest which would also help generate cash which would help in repayment. The ending cash on hand for October is $710,000 to help cover for November which has a larger amount of cash outflows then cash inflows. This on it's own would bring their cash shortage to $319,500 a savings of $12,000. Still this along with the removal of the $150,000 in dividends will still not eliminate their cash shortage. With the two combined, they still will have a shortage of $169,500. (Exhibit 3)
They can extend the repayment to the future when it will be possible for them to be repaid. I have worked a cash budget out into January of 1980 when they will be able to collect the cash from the large number of orders they expect to finish in December. I made the assumption that the proceeds from a sale would not be collected until next month since their sales terms are net 30 and most

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