Hampton Case Study

In: Business and Management

Submitted By tmy2876
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Written Assignment: Hampton Machine Toll Company

We did pro forma operating statement and pro forma balance sheet and cash budgets to use as our basis to forecast whether Mr. Corwin can pay his debt in December

In the following passage are our methods and assumptions used as a basis to predict. Exhibits are all contained in spreadsheets.

Based on our analysis, we estimated that the company will have a 1463000 ending balance cash in December so he should be able to pay off his loan in December. But we have considered that he might maintain cash flow at average level, so we recommended he discount some of the $2442000 account receivables.

Operating Statement (Exhibit 3)
Net Sale: We use Mr. Corwin’s prediction of sales

Cost of Sales: In the passage, Mr. Corwin mentioned in his letter that the monthly outlay other than interest expense and raw material purchase is about 400,000 and he also that the raw material purchase is about 600,000 per month for the next 4 month in this year. So the total sum for the cost of goods sold and the Selling and Administrative expense would be 1,000,000 for the 4 months.

Interest expense: In September and October numbers stay the same as history performance .In Nov,they pay interest on the new loan ,so they should pay extra interest based on 350,000*1.5%=5.25

Income tax : It’s mentioned in the case that the HMT company has a tax rate of 48%.

Dividend:a 150000 dividend in Dec. is mentioned in the material.

Balance sheet (Exhibit 2)

Cash amount is reflected in the cash budget sheet by the line named “ending cash”. Details are showed in the cash budget part.

A/R: Because the company have a 30 days collection period, so the change would be the shipment number for this month deducting the shipment number for the prior month, which would be collect this month. Using the figure of Sep. as an example,…...

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