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 Dec-
1979.
 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.