Essay about Part 1

2018 Words Feb 6th, 2013 9 Pages
Introduction
The Course Project is an opportunity for you to apply concepts learned to a real-life simulation experience. Throughout the Course Project, you will assume that you work as a financial analyst for AirJet Best Parts, Inc. The Course Project is provided in two parts as follows:
Part I – In Part I, you work with AirJet Best Parts, Inc. staff to identify the best loan options, as well as to valuate stocks and bonds.
Part II – In Part II, you will provide the company with a recommendation for purchasing a new machine. You will base your recommendation on the Net Present Value (NPV) of the capital investment project using the cost of capital (WACC) as your discount rate.
About AirJet Best Parts, Inc.
AirJet Best Parts, Inc.
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Hence,
Regions Best (EAR) = (1 + 13.17/12)12 – 1 = 14% compounded monthly.

2. Based on your calculations above, which of the two banks would you recommend and why? Explain your rationale. (15 pts)
Here, the company wants to borrow money, hence it will buy from that bank which charges the lower interest rate of the two. From the above calculation, it is quite evident that National Bank stands as the best alternative.

3. AirJet Best Parts, Inc. has decided to take a $6,950,000 loan being offered by Regions Best at 8.6% APR for 5 years. What is the monthly payment amount on this loan? Do you agree with this decision? Explain your rationale. (20 pts)

EAR = ( 1 + 8.6/12)12 - 1 = 8.95% compounded monthly.

Monthly payment = 8.95% of $69,50,000 = $622025 PVA = C({1 – [1/(1 + r)]t } / r) $6,950,000 = $C[1 – {1 / [1 + (.086/12)]60} / (.086/12)] Solving for the payment, we get: C = $6,950,00 / 48.62687 C = $142,925

Task 2: Evaluating Competitor’s Stock
AirJet Best Parts, Inc. is concerned regarding recent changes in its stock prices for the company and would like to determine the stock prices for key competitors. Key competitors include Raytheon, Boeing, Lockheed Martin, and the Northrop Grumman Corporation. 1. Using the dividend growth model and assuming a dividend growth rate of 5%, what is the rate of return for one of three key competitors? Use

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