Submitted by: Submitted by leliichao
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Words: 786
Pages: 4
Category: Business and Industry
Date Submitted: 04/16/2013 09:56 PM
Course Project Part 1
Task 1 a. The EAR of the National First Bank loan is 10.25%. I got this result with the following information.
APR = 3.25 (Prime Rate) + 6.75
M = 2 (Compounded semiannually)
I used this information in the following formula.
EAR = (1+APR/M)^M – 1 0.1025 = (1+.10/2)^2 – 1
The EAR of the Regions Best Bank loan is 13.99%. I got this result with the following information.
APR = 13.17
M = 12 (Compounded monthly)
I used this information in the following formula.
EAR = (1+APR/M)^M – 1 0.1399 = (1+.1317/12)^12 – 1
Task 1 b. Based on the calculations above, I would recommend using Regions Best Bank loan rather than National First Bank. The reason being, The APR (Annual Percentage Rate) and EAR (Effective Annual Rate) are lower than the APR and EAR that Regions Best offers. This will result in paying less for the loan borrowed.
Task 1 c. The monthly payment for the $6,950,000 loan borrowed from Regions Best at an APR of 8.6% would be $147,357.20. I got this answer with the following information and formula in Excel
PV= $6,950,000
r= 8.6% =PMT(rate,nper,PV,FV)
m= 5 (years)
Based on the information above the APR and EAR would be relatively lower than the rate that National First offers. If Air Jet Best Parts decides to borrow $6,950,000, I think it would be a good decision price wise.
Task 2 a. The rate of return for Raytheon is 8.51% assuming that the dividend growth rate is 5%. I got this answer by using the information below that I obtained from finance.yahoo.com and using the following formula to calculate in Excel.
g = 5%
R = ?
D1 = 2.0 (obtained from finance.yahoo.com)
P0 = $56.97 (obtained from finance.yahoo.com)
Formula used: R = D1/P0 + g R = 2.0/56.97 + .05 = .0851 = 8.51%
Task 2 b. The current share price for Air Jet Best Parts, Inc. if the rate of return is 8.51% and the constant growth rate is 1% is $17.79. I obtained this answer by using the following information and formula.
R =...