Finance Course Project Part 1

DeVry University, Business 379, grade 100%

Finance Course Project

Amanda Coleman

DeVry University

Finance: BUSN -379

Part 1

Task 1:

• The best option for acquiring the loan would be Regions Best financial institution, Regions Best offers a loan with an interest rate of 13.17% compounded monthly. The loan option from Regions Best has an EAR (effective annual rate) of 1.098%. The competitor offers a loan at a rate of 6.75% compounded semi-annually, this translates to an EAR of 3.375%.

13.17% = .1317

EAR= (.1317/12)

EAR = 0.01098 =1.0908%

6.75% = .0675

EAR= (0.675/2)

EAR= 0.03375 =3.375%

• Based on the above calculations, the best option would be accept a loan from Regions Best, this is because the EAR is lower which translates into lower interest based payments on the total loan sum.

8,000,000 * 1.098% = 87,840 (Regions Best)

8,000,000 * 3.375% =270,000 (National First)

Task 2:

For the Boeing Company, the stock value is $97.38 with a dividend payout of $1.94, if a 5% growth occurred then:

R = D1/P0 + g

R = ((1.94 * 1.05)/97.38) + .05

R= (2.037/97.38)+.05

R= .0291+.05

R = .070918 = 7.09%

If Air Jet has a 1% growth and the dividend is $1.50 then:

P0 = (D0 * (1+g))/(R-g)

P0 = ($2.00 * (1+ .01) / (.070918 - .01)

P0 = ($2.00 - 1.01)/ .060918

P0 = 16.25

After researching both the textbook and the internet about pricing for common and preferred stock I have observed that often the price of the preferred stock is higher. The main differences lie in the fact preferred stock usually is a fixed percentage of share which means that growth can be expected to be more constant, but this higher potential to earn means that there is also higher risk.

Increases in the dividends from the stock results in ultimately two things to the stock. First, an increase in the dividends reflects an increase in the stock price, second this also...