Bus 379

In: Business and Management

Submitted By Akillez99
Words 728
Pages 3
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)

National First
(1 + (6.75 + 3.25)/2)ˆ2 – 1
= 0.1025
EAR = 10.25%

Regions Best
(1 + 0.1317 / 12)ˆ12 – 1
= 0.14
EAR = 14%
2. Based on your calculations above, which of the two banks would you recommend and why? Explain your rationale. (15 pts)

Based on my calculations I would recommend National First loan because the EAR is only 10.25%. Regions Best’s EAR is 14% and since the smaller the rate of a company the better.

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? Explain your rationale. (20 pts)

(1 + 8.6 / 12)ˆ12 – 1 = 8.95%

Monthly payment 8.95% of $6,950,000 = $622,025

I agree with this decision because the company will pay less back because the loan is a smaller amount. As long as the company can turn a profit and make enough money to pay off the loan.
Task 2: Evaluating Competitor’s Stock
AirJet Best Parts, Inc. is concerned regarding recent changes in its stock prices for the company and would like to determine the stock prices for key competitors. Key competitors include Raytheon, Boeing, Lockheed Martin, and the Northrop Grumman Corporation.
1. Using the dividend growth model and assuming a dividend growth rate of 5%, what is the rate of return for one of three key competitors? Use Yahoo Finance to obtain the latest dividend amount and price for one selected company. (15 pts)

Raytheon Co. as of Sept 21, 2012…...

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