courseproject-part 1

courseproject-part 1 - PomNak Finance Professor:JamesGornto...

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Pom Nak Finance  Professor: James Gornto Course Project – Part 1 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-know commercial banks. Bank APR Number of Times Compounded National First Prime Rate + 6.75% Semiannually Regions Best 13.17 Monthly 1. Assuming that AirJet Parts, Inc. is considering loans from National First and  Regions Best, what are the EARs for these two banks? a. National First Bank: EAR = [(1+{3.25+6.75%}/2)^2]-1 EAR = [(1+10%/2)^2]-1 EAR = [(1.05)^2]-1 EAR = 1.1025-1 EAR = 10.25% Regions Best: EAR = [(1+13.17%/12)^12]-1

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EAR = [(1+0.010975)^12]-1 EAR = [(1.010975)^12]-1 EAR = 1.13995-1 EAR = 0.13995 EAR = 13.995% EAR = 14% 2. Based on your calculations above, which of the two banks would you recommend  and why?  Explain your rationale. a. I would recommend National First Bank because the EAR is 10.25%  where as the EAR for Regions Best is 14%.  National First Bank is  semiannually and although it has a prime rate (which is low), the APR is  low as well compared to Regions Best. 3. AirJet Best Parts, Inc. has decided to take a \$6,950,000 loan being offered by  Regions Best at 8.6% APR for 5 years.  What is the monthly payment amount on  this loan?  Do you agree with this decision?
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This note was uploaded on 08/01/2011 for the course BUSN 420 taught by Professor James during the Spring '11 term at DeVry Alpharetta.

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courseproject-part 1 - PomNak Finance Professor:JamesGornto...

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