Hampton Machine Tool – Case Write-Up
(To be answered in the Case Write-up) Include your solutions!
- Why can’t a profitable company like Hampton repay its Bank Loan on time and why does it need more bank financing?
- What major developments between November 1978 and August 1979 contributed to this situation?
- Based on the information in the Case, prepare a projected Cash Budget for the four months September 1979 to December 1979, and a projected Income Statement for the same period and Pro Forma Balance Sheet for December 31, 1979
- Critically evaluate the assumptions on which your forecasts are based. What developments could alter the results? Is Mr. Cowins correct in his belief that Hampton can repay its loan in December?
- What action should Mr. Eckwood take on Mr. Cowins’ loan request? What are the major risks associated with the proposed loan? What other alternatives does Mr. Eckwood have, and what are the pros and cons?
- Critically assess Hampton’s dividend policy. Do you agree with Mr. Cowins’ proposal to pay a substantial dividend in December?
- Why did Hampton repurchase a substantial percentage of its outstanding Common Stock? What is the impact of this repurchase on Hampton’s financial performance?