Busn Course Project Part - 1

BUSN 379 Course Project Part - 1 | March 24

2013

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Financial Consulting for AirJet Best Parts | By: James Ross Thompson |

BUSN 379 Course Project Part-1

Task 1:

We start by assessing loan options for AirJet Best Parts. We are finding that the company needs to finance $8,000,000 for their new factory in Mexico. The funds will be obtained through a commercial loan and by issuing corporate bonds. Here we list out 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 

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= 0.1025

EAR= 10.25%

Regions Best:

EAR =[ ( 1 +13.17%/12 ) ^12 ]-1 

EAR =[ ( 1 +0.010975 ) ^12 ] -1 

EAR =[ ( 1.010975 ) ^12 ] -1

EAR = 1.13995 - 1

EAR = 0.13995 

EAR = 13.995%

EAR = 14%

I would recommend National First Bank where the EAR is 10.25%. The EAR for Regions Best is 13.995% or 14%. After going through the numbers and the prime rate is different for both banks, the best option that can be done is to go with National First Bank. National First Bank is semiannually and because it has a prime rate which is low, the APR is low as well compared to Regions Best. So because of the information that if found I would recommend National First Bank with an EAR of 10.25%.

Next we go over if Air Jet Best Parts Loan and what they should do in regards to the bank and choice. Here is the loan information and how long it will be.

Loan: $8,100,000

APR: 9.2% 

Terms Of loan = 5 Years

Months = 60 

FV = $0 

Monthly Payment (PMT) = $168,930 

Air Jet chose and made the right decision to get loan from Region Best because its monthly payment would be lower at $168,930 based on the APR of 9.2% compounded monthly. I agree with this decision, because based on high APR 9.2% and high loan amount, they will get fair monthly...