Hampton Machine Tool Company, a manufacturer of machine tools, was founded in 1915. Hampton's customer base consists primarily of military aircraft manufacturers and automobile manufacturers in the St. Louis. Hampton felt the boom in the 1960s with record profits in the mid to late 1960s. Hampton slowed in the 1970s with the withdrawal from the Vietnam War and the oil embargo. Hampton stabilized in the late 1970s and now has a larger market share as other competitors were unable to overcome the difficult times. It is now September 14, 1979 Hampton asked for an extension until the end of December 1979 on the $1 million loan he made. taken out by St. Louis National Bank in late December 1978. The loan was originally taken out on the basis of monthly interest payments at the rate of 1.5 percent with repayment of principal at the end of September 1979. Hampton also requested an additional loan of $350,000 to be repaid at the end of December 1979 with monthly interest payments at the rate of 1.5%. The additional loan is needed for Hampton to upgrade its machinery, something it hasn't done since the economy entered a recession. The problem currently facing Hampton Machine Tool Company is the ability to repay its current loan and the additional loan requested from St. Louis National Bank. If Hampton proceeds as planned, it would find itself $331,500 short. (Figure 1) The way to solve the current problem is not to pay dividends; this will save them $150,000 but still leave them with a $181,500 shortfall. Paying dividends would be a nice gesture for the shareholders who supported them, but it could come at too high a cost. Shareholders don't want shares to eventually become worthless. They would have valued... half of the sheet... alCash on hand for the last 1,559,000 699,000 1,008,247 768,809 1,559,000Receipts from consumers 684,000 1,323,000 779,000 1,604,000 4,390,000Interest on cash 0 1,247 1,812 1,274 Total available liquidity 2,243,000 2,023,247 1,789,059 2,374,083 5,949,000 Interest on 1st loan 15,000 15,000 15,000 15,000 60,000First Loan Principle 1,000,000 1,000,000Second Loan Principle 350,000 350,000Interest on 2nd Loan 5,250 5,250 10,500Payment of dividends 150,000 150,000Payment of taxes 15 September 181,000 181,000 Tax payment December 15 181,000 181,000 All other expenses 400,000 400,000 400,000 400,000 1,600,000 August AP payment 948,000 948,000 Payment for inventory 600,000 600,000 600,000 1,800,000 Total expenses 1,544,000 1,015,000 1,020,250 2,701,250 6,280 500 Final cash balance 699,000 1,008,247 768,809 -327,167 -331,500