Airjet Best Parts Inc.

TABLE OF CONTENTS

Assessing Loan Options

Calculating EAR 3

Bank Recommendation 3

Regions Best Loan Option 4

Evaluating Competitor’s Stock

Boeing 5

Current Stock & Dividend 5

Growth Rate 5

Current Share Price of AirJet Best Parts 5

Preferred Stock or Current Stock 5

Increased Dividends Scenario 5

Bond Evaluation

New Coupon Rate 6

Difference between Coupon Rate & YTM 6

Riskiness of Bonds 6

Positive & Negative Covenants of Bonds 6

Loan Amortization Tables

Regions Best 7

National First 9

References 10

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-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/series/MPRIME). Select “Interest Rates” and then “Prime Bank Loan Rate”. Use the latest MPRIME. Show your calculations. (15 pts)

Assuming AirJet has these two banks to look towards for loans National First bank has a current Prime Rate of 3.25%.

National First = [1+ (3.25%+6.75%)/2]^2-1

EAR= 10.25%

Regions Best = (1+13.17%/12) ^12-1

EAR = 13.99% or 14% rounded up

2. Based on your calculations above, which of the two banks would you recommend and why? Explain your rationale. (15 pts)

From using the formula to calculate the EAR, I would have to go...