Devry BUSN379 Week 3 Course Project Part 1

BUSN 379 Week
3 Course Project Part 1

Introduction
The Course Project is an opportunity for you to apply concepts
learned to a real-life simulation experience. Throughout the Course Project,
you will assume that you work as a financial analyst for AirJet Best
Parts, Inc. The Course Project is provided in two parts as
follows:Part I
–
In Part I, you work with AirJet Best Parts, Inc. staff to
identify the best loan options, as well as to valuate stocks and
bonds.Part II
–
In Part II, you will provide the company with a recommendation for
purchasing a new machine. You will base your recommendation on the Net Present
Value (NPV) of the capital investment project using the cost of capital (WACC)
as your discount rate.
About AirJet Best Parts, Inc.
AirJet Best Parts, Inc. is a company dedicated to the
design and manufacturing of aviation and airplane technologies and parts.
The company has commercial and military clients worldwide.
Task 1: Assessing loan options for AirJet
Best Parts, Inc.
The company needs to finance $8,000,000 for a new factory
in Mexico. The funds will be obtained through a commercial loan and by
issuing corporate bonds. Here is some of the information regarding the APRs
offered by two well-known commercial banks.
Bank APR Number of TimesCompoundedNational
First
Prime Rate +6.75%Semiannually
Regions Best
13.17 Monthly1. Assuming that AirJet Parts, Inc.
is considering loans from National First and RegionsBest, what
are the EARs for these two banks? Hint for National Bank: Go to the St. Louis
Federal Reserve Board’s website.stlouisfed.org/fred2/”>(
.stlouisfed.org/fred2/”>http://research.stlouisfed.org/fred2/
.stlouisfed.org/fred2/”>). Select “InterestRates” and then
“Prime Bank Loan Rate”. Use the latest MPRIME.
Show your calculations. (15 pts)
Assume that the prime rate is 3%. If so,National First =
[1+(3%+6.75%)/2]^2-1 = 9.9%Regions Best = (1+13.17%/12)^12-1=13.99%Use Formula
5.5 of textbook.
2. Based on your calculations above, which of
the two banks would you recommend andwhy? Explain your
rationale. (15 pts)