Assessing Loan Options

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Course Project Part 1
Task 1: Assessing loan options for AirJet Best Parts, Inc.
Bank| APR | Number of Times Compounded|
National Bank| Prime Rate + 6.75%| Semiannually (2)|
Regions Best| Prime Rate + 13.17%| Monthly (12)|

1. National Bank:
MPRIME 3/20/2012 = 3.25
3.25%+6.75% = 10%
ERA= EAR= (1+QR/m) ^m-1
10%/100= 0.1
(1+0.1/2)^2-1
0.1/2=0.05
1+0.05= 1.05
(1.05)^2= 1.1025
1.1025-1= .1025
.1025*100= 10.25%
EAR= 10.25%
Regions Best:
EAR= (1+QR/m) ^m-1
13.17%/100= 0.1317
(1+0.1317/12)^12-1
0.1317/12= 0.010975
1+ 0.010975= 1.010975
(1.010975) ^12= 1.1399
1.1399-1= 0.1399
0.1399*100= 13.99%
EAR= 13.99%

1. After making both calculations for National Bank and Regions Best I came up with the conclusion that it would be best to get a loan from National Best. The reason why this is said is because the interest rate is 10.25% compared to 13.99%, that is a huge difference and companies should always look up to saving money. 2. Loan= $6,950,000

APR= 8.6%
Years = 5 (60 months)
Excel Formula: =PMT(8.6%/12,60,-6950000,,0)
Monthly Payment= $142,925.09
Total Paid: $8,575,505.40

I do not agree with the decision made because the interest is high and they would be paying $1,625,505.40 in pure interest. They should have tried to look for another bank who offered a lower interest rate to save money.

Task 2: Evaluating Competitor’s Stock
1. Boeing
Stock Price: $73.92
Dividend per share: $1.76
Dividend yield: 2.30%
Required Rate of Return = (Dividend per Share/ Stock Price) + Growth ($1.76/$73.92)+ 0.05
$1.76/$73.92= 0.02380
(0.02380)+0.05= 0.07380
0.07380*100= 7.38%
Required Rate of Return= 7.38%
2. Required Rate Return using Boeing= 7.38%
Constant growth rate in dividends= 1%
Dividends per share =$1.50
Dividend per share*(1- growth rate)
$1.50*(1-0.01)
$1.50*(0.99) = $1.48
Current Share Price= Dividend per share/(rate of return-growth rate) $1.48/(7.38%-1%)
(0.0738-0.01)= 0.0638
$1.48/0.0638=...
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