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 in sales it experienced the past few years. This decline can be traced back to the oil embargo, increase of

gasoline prices and the recession. After these three events began to dissipate, however, HMTC saw a steady increase in

sales. HMTC needed more bank financing to purchase equipment to fill its large amount of backorders for the