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Posted: February 19th, 2022
Company Analysis: Hampton Machine Tool Company
The questions for the Hampton Machine Tool Company are given under. Please put together for submission questions 1 and a couple of solely. That’s, please submit your steadiness sheet for December 31, 1979 and revenue assertion for the 4 month interval, September by means of December 1979, requested in Question Assignment 2 under (your revenue assertion shouldn’t be month-to-month; it ought to cowl your entire 4 months). Please additionally put together, however don’t submit, the remaining questions.
1. Why cannot a worthwhile firm like Hampton repay its mortgage on time and why does it want extra financial institution financing? What main developments between November 1978 and August 1979 have contributed to this case?
2. Primarily based on the data within the case, put together a projected revenue assertion for the 4 months Sept. 1979 by means of Dec. 1979 and a professional forma steadiness sheet as of December 31, 1979. (Your revenue assertion shouldn’t be month-to-month. You need to make one protecting your entire 4 months.)
three. Critically consider the assumptions on which your forecasts are based mostly. What developments may alter your outcomes? Is Mr. Cowins right in his perception that Hampton can repay the mortgage in December? four. Primarily based on the data within the case, put together a projected money price range for the 4 months, September by means of December 1979. Do the money budgets and professional forma monetary statements yield the identical outcomes? Why, why not? Trace: they need to.
One other trace: Don’t depend on the assertion on web page 6, ―…our engineering estimates point out that we anticipate to earn a revenue earlier than taxes and curiosity of about 23% on gross sales on these shipments‖. As an alternative utilizing the accounting relation in Q#2 (footnote under) when developing your revenue assertion. 5. What motion ought to Mr. Eckwood tackle Mr. Cowins’ mortgage request? What are
the main dangers related to the proposed mortgage? What different options does Mr. Eckwood have and what are the professionals and cons? What would you do?
6. Why did Hampton repurchase a considerable fraction of its excellent frequent inventory? What’s the influence of this repurchase on Hampton’s monetary efficiency? Critically assess Hampton’s dividend coverage. Do you agree with Mr. Cowins’ proposal to pay a considerable dividend in December?
With Cartwright, we had a comparatively simplistic state of affairs, significantly because it issues stock: just one class of stock was represented, not the standard threesome of uncooked supplies, work in course of, and completed items. (Presumably Cartwright was not including a lot worth to the uncooked supplies, simply promoting them by means of, though—quite the opposite—the case appeared to point that the corporate manufactured some door frames, trim, and many others.)
For Hampton, you may discover useful a primary accounting relationship: starting stock + purchases + different outlays – value of gross sales = ending stock; fixing for value of gross sales (and recognizing that finish – start stock is change in stock), Value of gross sales = purchases + different outlays – change in stock. (Observe that there are a pair stock sorts to incorporate.)
Extra sub-hint: the ―different outlays‖ quantity to $400Okay/mo. There are different bills that must also be stored in thoughts when producing the pro-forma revenue assertion.
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