...Cases in Finance September 26, 2012 Dr. Thomas McCue Case 1: Hampton Machine Tools Evan Cvejkus Hampton Machine Tools is a company that specializes in the production and manufacturing of machine tools. The company has been in existence since 1915 and weathered all economic and internal struggles where most of their competitors met defeat. In order to purchase new equipment, Hampton requires a new loan of $350,000 and also wants to renew their current loan of $1,000,000 that will soon expire. In this case, we must decide whether or not the bank should give Hampton what it needs to succeed. The bank should renew the loan to Hampton Machine Tools as well as giving them the new loan for equipment purchase. The reason for lag in loan payments is due to the fact that Hampton had purchased a larger amount of raw materials than normal in July and August. Also, there was a small halt in production when the company was awaiting a component for one of the electronic control mechanisms. As stated in the case, they had seven machines totaling $1,320,000 completed with the exception of the control mechanism. This was a onetime hiccup by the supplier and Hampton suffered because of it. Hampton is a very transparent company. They offer up any and all financial statements that they have without even being asked. Benjamin Cowins, who is the president of Hampton, is an honest and trusted man. He is known throughout the community for his upstanding character and honesty within the business...
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...1978, Hampton Machine Tool took out a $1 million loan from the St. Louis National Bank. On September 14, 1979, the company asked for an extension of the loan to the end of December 1979. Moreover, Hampton has asked for an additional $350,000 loan to be repaid at the same time as the previous loan. Both loans are to be repaid with monthly interest payments at the rate of 1.5%. The underlying problem affecting Hampton Machine Tools is its ability to payback its current loan and the requested one on time. Indeed, according to Exhibit 1, if Hampton carries forward as forecasted, the company will be short $331,500. The company could restructure its loan by paying interests ahead of time. However, while it would lessen the company’s cash shortage, Hampton would still have a negative balance by December. The issue is that the company should be able to repay the debt in January. Thus, the company should have asked for an extension up to January instead of December: the company neglected its selling terms of 30 days. While it would be wise for Mr.Eckwood to reject the proposal because his main concern should be the borrower’s repayment of the loan, which Hampton Machine Tool is unable to do on time, I would advise him to modify the terms of the loan. Indeed, Mr. Eckwood should renegotiate the terms of the loan in order to allow Hampton to extend its payment for one month. However, the modification should not come for free: if I were Mr. Eckwood, I would penalize Hampton Machine Tool...
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...Hampton Machine Tool Company On September 14, 1979, Mr. Jerry Eckwood, vice president of the St. Louis National Bank was considering a loan request from a customer located in a nearby city. The company, Hampton Machine Too] Company, had requested renewal of an existing $1 million loan originally due to be repaid on September 30. In addition to the renewal of the existin- loan, Hampton was asking for an additional loan of $350,000 for planned equipment purchases in October. Under the terms of the company's request, both loans, totaling $1.35 million, would be repayable at the end of 1979. Since its establishment in 1915, Hampton Machine Tool Company had successfully weathered the severe cyclical fluctuations characteristic of the macl-tine tool manufacturing business. In the most recent cvcle, Hampton had experienced record production and profitability during the niid- and late 1960s. Because Hampton's major customers included the aircraft manufacturers and automobile manufacturers in the St. Louis area, the company's success in the 1960s reflected a strong automobile market and the heavy defense spending associated with the Vietnam War. Hampton rode the 1960s boom into the early 1970s. Hampton, along with the rest of the capital goods industry, experienced a severe decline in sales and profitability in the rriid-1970s. Precipitous declines in the production of automobiles in St. Louis facilities reflected the Arab oil embargo, subsequent increases in the price of...
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...Student ID#: 285 Firm: Hampton Machine Tool Company Nature of business: Machine Tool Manufacturing Overview Hampton Machine Tool Company was founded in 1915 and experienced record production and profitability throughout the years despite hard economic times for the machine manufacturing business. Sales declined throughout the mid 1970’s from the post Vietnam War demand, the declining automobile industry in St. Louis, and the gas embargo of the early 1970’s. Hampton did eventually recover due to an increase in military sales, the automobile industry rising, an overall improvement in the economy. Hampton is looking to take out a line of credit of $1,000,000 and an additional loan of $350,000 to purchase equipment, and an extend payment an additional three months to December 1979. Suppliers have hampered Hampton’s sales with late deliveries of machine parts. Because of this, Hampton is unable to pay its loan on time, which is due in September. Marketing Hampton Machine has bolstered its sales but is, unfortunately, not able to keep up with demand. This can be attributed once again to supply chain problems. The company currently has unfilled orders of $16,500,000 as of August 31. This accounts for 90% of its forecasted sales and the company is in desperate need to fill these orders by December so as to avoid disappointing its customers or sending a signal to the market that the company has severe management problems. Operations This company could possibly have...
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...HAMPTON MACHINE TOOL COMPANY On September 14, 2007, Jerry Eckwood, vice president of the Wellington National Bank was considering a loan request from a customer also located in Wellington, New Zealand. The company, Hampton Machine Tool Company, had requested renewal of an existing $1 million loan originally to be repaid September 30, 2007. In addition to the renewal of the existing loan, Hampton was asking for an additional load of $350,000 for planned equipment purchases in October. Under the terms of the company’s request, both loans, totaling $1.35 million would be repayable at the end of 2007. Since its establishment in 1915, Hampton Machine Tool Company has successfully weathered the server cyclical fluctuations that characterize the machine tool manufacturing business. In the most recent cycle Hampton had experience record production and profitability during the past decade – primarily due to export sales to Australia. While the economy in Australia continues to boom, the increasing value of the New Zealand dollar was significantly eroding the firm’s ability to export. Hampton’s conservative financial policies had contributed to its survival and success in the volatile capital goods industry. The company had traditionally maintained a strong working capital position as a buffer against economic uncertainty. As a result, the company had no debt on its balance sheet during the 10 years prior to December of 2006. In a meeting in early December 2006, Benjamin...
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...On September 12, 1979, Hampton Machine Tool Company (HMTC) requested from St. Louis National Bank a renewal to their loan of $1,000,000 due to be repaid on September 30, 1979 and also to be given an additional loan of $350,000 for new equipment purchases in October 1979. Both loans were to be repaid on December 31, 1979. Hampton M.T. Company wrote a letter to the St. Louis National Bank stating the reasons for the extension of the loan and the need of the additional loan, and giving the current and the predicted future financial position of the company. In order to decide whether to approve the loan extension and the additional new loan, it is most wise to examine the financial position of the company for the following months to come and calculate the forecasted Income Statement and Cash Flow Analysis to find out if the company will have the required cash flows to repay their loan and interest on time. It is important, however, to first examine why HMTC was unable to repay its initial loan. Hampton Machine Tool Company was unable to repay its loan on time due to several factors. One of such factors is the fact that the stock repurchase, for which the loan was initially requested, was a major cash disbursement of $3 million. In the period between November 1978 and August 1979, stock repurchase represented 58% of total expenditures for that period, while inventory purchases represented 42% of total expenditures. They also had a difficult time repaying because of the steep decline...
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...EXECUTIVE SUMMARY: I propose that our firm should buy 1 CNC grinding machine in order to improve performance of the existing line because face grinding is our bottle neck Which is increasing the MLT of the process. By buying CNC, we can reduce the number of products going to rework and failing the inspection process as seen by the analysis given below. We should employ this strategy immediately because we have only 6 months and the machine needs at least 6 months to work at full capacity. We should not accept orders below 70 as it increases MLT and disturbs our process. We should increase or batch size to 140 to increase output. KEY ISSUES: Problems the plant is facing is that lot of time is spent on customer complaints and managing the growing amount of rework for products that failed the design specifications hence further increasing the MLT of the process. There is lot of rework and process is slow because customers generally prefer to receive complete orders. The plant is getting orders ranging from 1 to 140 units. Small order are increasing the MLT because of high setup time. For the small orders less than 70, the bottle neck is Milling in the chamber machining operations but for orders greater than 70 the bottle neck is face grinding as shown in exhibit 1. Chamber machining and grinding problems could not be detected until the sensor is built and tested. So we have to go through the whole process. The grinding process is our bottle neck which is reducing...
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...Milling: I used the milling machine to mill shards of metal off so I could create the smooth and sleek finish I wanted on my work; It was also very easy for me to shape my work in the desired style. It also allowed me to mill down top a specific height that I wanted. Pillar drill: I used the pillar drill to drill holes into my work, these holes were made so I could put a tap into them are create a threaded hole for my bar which I will then use in my tool makers clamp Tapping: as I mentioned before I drilled a hole with a pillar drill and made it possible to tap. I held my work in a bench vice to do this process, this now has allowed me to be able to insert threaded bar into my clamp. 3 jaw chuck: I used a 3 jaw chick when using a lathe, this allowed me to grip my work efficiently and allowed me to be safe using that machine at over 540rpm due too it’s very efficient holding style Angle plate: I used an angle plate to ensure correct measurements on my clamp, an angle plate is level and the best surface to scribe on. Bench vice: I used a bench vice thought the whole process of creating my tool makers clamp, this made it very easy for me to undertake lots of procedures that would often be hard to carry out without the use of a bench...
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...Boring is an operation used for increasing a hole which has been already made by other processes such as drilling or casting. Thus, it serves the purpose of increasing the internal diameter of cylindrical objects. It is done by means of a single-point cutting tool called boring bar. The boring operation can be done by either rotating the boring bar with the workpiece held stationary or otherwise keeping the boring bar positioned on the tool post of turning machine and moving it towards rotating workpiece which is held by a chuck. Boring is used to achieve different aspects for a workpiece .Firstly, it helps to give appropriate size and finish for the workpiece. Boring can be used to straighten a hole which was originally drilled,...
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...Hampton Machine Tool Company, a profitable machine tool manufacturer, is trying to renew a 1 million dollar loan due September 30, 1979 until December 31, 1979. Through examination of the case, it is clear that Hampton will be unable to repay the loan; however, at first glance Hampton seems to be a profitable company that would be able to pain the loan on time and would not need more bank financing. Unfortunately, that is not the case. Hampton, by making a stock repurchase for which the loan was taken, forced a major cash expenditure onto the company a year prior- costing Hampton almost a 3 million dollar loss forcing Hampton to push back the date on the loan. Since a whole year went by with less cash on hand, it was nearly impossible for Hampton to be able to pay its loan on time. For example, in the period between November 1978 and August 1979, stock repurchase represented 58% of total expenditures for that period, while inventory purchases represented 42% of total expenditures. Furthermore, Hampton needs more bank financing ($350,00) because they had not been in contact with new equipment since the recession hit; it is important to the success of a company to be up to date on the newest equipment, especially dealing such important equipment. Moreover, Hampton needs more bank financing because of the vast amount of backorders and lack of current cash. Hampton claims the request is vital because it will improve the operational efficiency of the company, but cannot afford the...
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...Study Case: Hampton Machine Tool Background. Hampton Machine Tool Company, a machine tool manufacturer, was founded in 1915. Hampton's customers are military aircraft and automobile manufacturers in the St. Louis area. Machine Tool Company felt the boom in the 1960`s with record setting profits in the mid- to late- 1960`s. The company slowed down in the 1970`s economic recession caused by Vietnam War and the oil embargo. Hampton stabilized by the late 1970`s and now has a “strong working capital position”. The company also didn`t have a debt during 10 years until December 1978. 1. Why can`t a profitable company like Hampton repay its Bank Loan on time and why does it need more bank financing? The excising $1 million loan was due September 30, 1979, but Mr. Cowins requested to renew it until the end of 1979. The main cause why Hampton can`t repay its Bank Loan on time is that the company made a stock repurchase, for which loan was taken. That was major cash expenditure for the company of $3 million ($1million of loan+ $2 million of excess cash) in December 1978; this was a main reason why company had a delay in repaying of the loan. The president of the company, Mr. Cowins wishes to borrow an additional $350,000 “for planned equipment purchases in October”, they didn`t buy or renew an equipment since the economic recession. He also mentioned this loan in total $1,350,000 will be repaid at the end of December 1979. 2. What...
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...Hampton Case Study Study Case: Hampton Machine Tool Background. Hampton Machine Tool Company, a machine tool manufacturer, was founded in 1915. Hampton's customers are military aircraft and automobile manufacturers in the St. Louis area. Machine Tool Company felt the boom in the 1960`s with record setting profits in the mid- to late- 1960`s. The company slowed down in the 1970`s economic recession caused by Vietnam War and the oil embargo. Hampton stabilized by the late 1970`s and now has a “strong working capital position”. The company also didn`t have a debt during 10 years until December 1978. 1. Why can`t a profitable company like Hampton repay its Bank Loan on time and why does it need more bank financing? The excising $1 million loan was due September 30, 1979, but Mr. Cowins requested to renew it until the end of 1979. The main cause why Hampton can`t repay its Bank Loan on time is that the company made a stock repurchase, for which loan was taken. That was major cash expenditure for the company of $3 million ($1million of loan+ $2 million of excess cash) in December 1978; this was a main reason why company had a delay in repaying of the loan. The president of the company, Mr. Cowins wishes to borrow an additional $350,000 “for planned equipment purchases in October”, they didn`t buy or renew an equipment since the economic recession. He also mentioned this loan in total $1,350,000 will be repaid at the end of December 1979. 2. What major developments...
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...6/1/16 Short form analysis – Hampton Machine Tool Company Business and Strategy Hampton Machine Tool Company is in the capital goods industry supplying aircraft and automobile manufacturers with machine tools. Located in St. Louis and founded in 1915, Hampton is a direct supplier of military purchasers, both domestic and abroad, while also supporting regional automobile companies. This industry, and Hampton’s customer segment is often affected by economic factors from gasoline prices and government spending, and while both are unpredictable, their conservative financial policies have enabled Hampton to survive and thrive amid uncertainty in the market. Hampton’s conservative position enabled it to weather the recession of the mid-1970s while it eliminated some of its competitors, thus increasing its market share. The most recent loan from St. Louis National Bank was the first debt that Hampton had added to its balance sheet since 1968. Due to the recent recession, Hampton has been unable to purchase new equipment which has contributed to its issues in producing at capacity. Profits have been high, there is a backlog of sales orders representing about 90% of annual capacity in August, most from respected and trustworthy customers. Hampton currently retains a high cash position, but 99.5% of it is obligated as a cash advance to a customer whose order is expected to ship over the next three months. Reflecting this inflated cash position, Hampton truly holds only $7,000 in...
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...On September 12, 1979, Hampton Machine Tool Company (HMTC) requested from St. Louis National Bank a renewal to their loan of $1,000,000 due to be repaid on September 30, 1979 and also to be given an additional loan of $350,000 for new equipment purchases in October 1979. Both loans were to be repaid on December 31, 1979. Hampton M.T. Company wrote a letter to the St. Louis National Bank stating the reasons for the extension of the loan and the need of the additional loan, and giving the current and the predicted future financial position of the company. In order to decide whether to approve the loan extension and the additional new loan, it is most wise to examine the financial position of the company for the following months to come and calculate the forecasted Income Statement and Cash Flow Analysis to find out if the company will have the required cash flows to repay their loan and interest on time. It is important, however, to first examine why HMTC was unable to repay its initial loan. Hampton Machine Tool Company was unable to repay its loan on time due to several factors. One of such factors is the fact that the stock repurchase, for which the loan was initially requested, was a major cash disbursement of $3 million. In the period between November 1978 and August 1979, stock repurchase represented 58% of total expenditures for that period, while inventory purchases represented 42% of total expenditures. They also had a difficult...
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...Executive Summary Statement of the Problem Hampton Machine Tool Company is a manufacturing company located in the St. Louis area that supplies industrial tools to manufacturers in both the automobile and military defense industries. St. Louis National Bank is considering a loan request from Hampton on September 14, 1979. The loan request consists of the renewal of a previously granted loan of $1 million, used to repurchase stock, and an additional $350 thousand, needed to upgrade machinery. Both loans would be due at year’s end with 1.5% monthly interest on principal. Discussion The decision St. Louis National faces is whether or not to loan Hampton the requested $1.350 million. Issues concerning this decision are (a) can Hampton fulfill its promise to repay the debt obligation at year’s end as promised, (b) will Hampton increase its operational efficiency as promised, (c) should Hampton’s $150 thousand dividend obligation be provided through the requested loan, and (d) is Hampton’s current method of revenue recognition optimal. Each of these issues should be addressed after factual consideration. A. Hampton’s balance sheet is strong enough to repay the requested loan, if granted. However, Hampton’s balance sheet also shows that a renewal of the outstanding loan is not a necessity as it has enough assets to liquidate in order to retire its current obligation. St. Louis National must be aware that granting Hampton’s request does not eliminate similar requests in...
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