Please submit your forecast of FCF for the four-month period, September through December 1979, requested in question d below. There is no memo required; you may just submit the spreadsheet (in PDF format) with your forecasts of FCFs. Please make sure to use the information in the updated letter on Canvas and NOT the one in the text of the case.
Prepare: Hampton Machine Tool Company 9-280-103 Rev. 12/3/91
Questions:
a) What is Hampton’s competitive position in the marketplace? Who are their suppliers? Who are the customers?
b) Why did Hampton repurchase a substantial fraction of its outstanding common stock? What is the impact of this repurchase on Hampton’s financial performance?
c) Why can’t a profitable company like Hampton repay its loan on time and why does it need more bank financing? What major developments between November 1978 and August 1979 have contributed to this situation?
d) How much will Hampton Machine Tools owe to its ticket holders (i.e., debt and equity holders) as of Dec. 1979?
e) Based on the information in the case, prepare a (single-not MONTHLY) forecast for Hampton’s FCF for the period Sept. – Dec. 1979.
f) Is Mr. Cowins correct in his belief that Hampton can repay the loan in December?
g) 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? What would you do?
HINTS:
Do not use ratios or percent of sales methods for forecasting. Use explicit details from Cowins’ letter.
Combine COGS and SG&A into one line item (“other outlays”).
COGS calculation:
COGS = Beg. Inventory + Raw Material Purchases + Direct Labor + Overhead – Ending Inventory
(Total overhead includes depreciation and cash overhead.)
Ending inventory balance can be derived from case details (Cowins provides the change in inventory).
Assume the bank extends the loan to December and allows Hampton to borrow the extra $350K.
Note: Ensure forecasts align with the updated letter on Canvas, not the case text. Focus on balance sheet accounts and avoid separating COGS/SG&A. Use total “other outlays” for simplicity.