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Airjet Best

In: Business and Management

Submitted By Jane963
Words 377
Pages 2
Air Jet Best Parts, Inc.
Financial Analysis
Task 1: Financing $8,000,000.00 for new factory in Mexico 1. Assuming that AirJet Parts, Inc. is considering loans from National First and Regions Best, what are the EARs for these two banks? Hint for National Bank: Go to the St. Louis Federal Reserve Board’s website (http://research.stlouisfed.org/fred2/). Select “Interest Rates” and then “Prime Bank Loan Rate”. Use the latest MPRIME. Show your calculations. a. National First Bank: 3.25%(prime rate) + 6.75% =10% compounded semiannually
.10/2 = 0.05 =5% semiannually
1 x 1.05^2 = 1.1025
Effective Annual Rate = 10.25% b. Regions Best Bank: 13.17% monthly
.1317/12= 0.010975 = 1.0975% monthly
1 x 1.010975^12 = 1.139948
Effective Annual Rate = 13.99%

2. Based on your calculations above, which of the two banks would you recommend and why? Explain your rationale.

Based on the above calculations I would have to recommend Air Jet Best Parts, Inc. secure financing with National First Bank. Based on the effective annual rate the amount of interest that Air Jet would pay is significantly less than obtaining a loan from Regions Best Bank. Also, the fact that National First Bank’s interest is compounded semi-annually, helps as well.

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.

P = (L * t * (1+t)^n) / ((1+t)^n -1)
P = (6,950,000 * ((8.6/100)/12) * (1+((8.6/100)/12))^60)/((1+((8.6/100)/12))^24-1)
P = (6,950,000 * 0.00716 * (1 + 0.00716)^60 / (1 + 0.00716)^60 -1)
P = (6,950,000 * 0.00716 * 1.534292) / (1.534292 – 1)
P = 76349.4385 / .534292
P = 142898.38 monthly payment

I agree with AirJet’s decision to get the loan from Regions Best because its monthly payments would be lower that choosing National First with an APR of 10%. Based on the fact that the APR is lower would provide a lower interest rate and result in a lower monthly payment as well.

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