March 20, 2013
Course Project, part one
Task One: AirJet Best Parts
1. National Bank’s APR is the prime rate plus the 6.75% and the number of times it’s compounded is Semiannually. Going to the website, we see that the prime rate is 3.25%. So adding that to 6.75%, we get 10%. So the rate is 10% paid semiannually, which is twice a year at 6 months. To get the EAR, we will divide 10% by 2, then add one, all raised to the second power, then subtract one. The EAR is 10.25%. We look at the EAR because it shows us what we are actually paying in comparison to just the APR. The equation is show in appendix A.
We are comparing this bank to Regions Best. They have an APR of 13.17, which at glance is higher than that of National’s Best. They are compounded monthly, which is 12 times a year. This equation is 13.17% divided by 12; add one, raised to 12, minus one. The EAR for this bank is 13.99%, which is higher than National Bank. This is shown in appendix A.
2. Out of the two banks above, I would choose the National First Bank. They offer a lower EAR. Thus during the lifetime of the loan there will be less accrued interest than with the other bank. Even First National’s APR was lower than Regionals Best. This choice would reduce the amount of debt for the company. A company would want a lower EAR because it is actually what they are paying.
3. The monthly payment amount on this loan would be $142, 925.09. This is being shown by putting in the loan amount of $6,950,000 with and APR interest of 8.6% and loan term of 5 years into a loan calculator. The results are shown in appendix B. I agree with the decision to go ahead with this loan, but I feel it would depend on what the other bank would offer as well. It seemed Regional bank lowered their APR when going from the principle amount of $8,000,000 to $6,950,000. So since First National had a lower APR to begin with, I... [continues]
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