Case 1

Questions

Remember, the general structure of your presentation should be:

• Identifying the major issues or problems or questions.

• Analysis of the major issues, problems or questions.

• Recommendations or conclusions.

You should be able to limit the verbal part to less than 4 pages, double spaced.

Case 1 Questions

Hampton Machine Tool Company

1. Why can't a profitable firm like Hampton repay its loan on time and why does it need more bank financing? What major developments between November 1978 and August 1979 contributed to this situation?
2. Based on the information in the case, prepare a projected cash budget for the first four months September through December 1979, a projected income statement for the same period, and a pro forma balance sheet as of December 31, 1979.
3. Review the results of your forecast. Do the cash budgets and the pro forma financial statements yield the same results? Why?
4. Critically evaluate the assumptions on which your forecasts are based. What developments could alter your results? Is Mr. Cowins correct in his belief that Hampton can repay the loan in December?
5. 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 their pros and cons? What would you do?
6. Why did Hampton repurchase a substantial fraction of its outstanding common stock? What is the impact of this repurchase on Hampton's financial performance? Critically assess Hampton's dividend policy. Do you agree with Mr. Cowins' proposal to pay a substantial dividend in December?

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