Hampton Machine Tool

Hampton Machine Tool Company, a machine tool manufacturer, was founded in 1915. Hampton 's customer base is made up primarily of military aircraft manufactures and automobile manufactures in the St. Louis area. Hampton felt the boom in the 1960s with record setting profits in the mid to late 1960s. Hampton slowed down in the 1970s with the withdrawal from Vietnam War and the oil embargo. Hampton stabilized by the late 1970s and now has a larger market share as other competitors were unable to make it through the tough times. It is now September 14, 1979 Hampton has asked for an extension to the end December 1979 on the $1 million loan they took out from the St. Louis National Bank at the end of December 1978. The loan was originally taken out on the terms of monthly interest payment at a rate of 1.5% with the principle to be paid back at the end of September 1979. Hampton also has asked for an additional $350,000 loan to also be repaid at the end of December 1979 with interest payments monthly at the rate of 1.5%. The additional loan is a must for Hampton to update its machinery which they have not done since the economy went into a recession.
The problem currently facing Hampton Machine Tool Company is the ability to payback it 's current loan and the additionally requested loan from the St. Louis National Bank. If Hampton carries forward as planned they will be short $331,500.(Exhibit 1)
Ways to fix the current problem are to not pay dividends; this will save $150,000 but still leave them at a shortage of $181,500. Payment of dividends would be a nice gesture to stockholders that have stood by them, but may be at too great of cost. Stockholders do not want to see the stock ultimately become valueless. They would rather forgo dividends now if it means their stock will still have value and they may receive dividends in the future. Not paying the dividends is the number one thing Hampton must remove from their current cash budget plan.
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