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BUSN 379 Project Part 1

# BUSN 379 Project Part 1 - Introduction The Course Project...

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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 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? Hint for National Bank: Go to the St. Louis Federal Reserve Board’s website ( http://research.stlouisfed.org/fred2/ ). Select “Interest Rates” 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.

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BUSN 379 Project Part 1 - Introduction The Course Project...

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