...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. ...
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...AirJet Best Part, Inc. DeVry University BUSN-379 TABLE OF CONTENTS Assessing Loan Options Calculating EAR 3 Bank Recommendation 3 Regions Best Loan Option 4 Evaluating Competitor’s Stock Boeing 5 Current Stock & Dividend 5 Growth Rate 5 Current Share Price of AirJet Best Parts 5 Preferred Stock or Current Stock 5 Increased Dividends Scenario 5 Bond Evaluation New Coupon Rate 6 Difference between Coupon Rate & YTM 6 Riskiness of Bonds 6 Positive & Negative Covenants of Bonds 6 Loan Amortization Tables Regions Best 7 National First 9 References 10 Course Project Part 1 Task 1: Assessing loan options for AirJet Best Parts, Inc. The company needs to finance $8,000,000 for a new factory in Mexico. The funds will be obtained through a commercial loan and by issuing corporate bonds. Here is some of the information regarding the APRs offered by two well-known commercial banks. Bank | APR | Number of Times Compounded | National First | Prime Rate + 6.75% | Semiannually | Regions Best | 13.17 | Monthly | 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/series/MPRIME)...
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...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. is a company dedicated to the design and manufacturing of aviation and airplane technologies and parts. The company has commercial and military clients worldwide. Task 1: Assessing loan options for AirJet Best Parts, Inc. The company needs to finance $8,000,000 for a new factory in Mexico. The funds will be obtained through a commercial loan and by issuing corporate bonds. Here is some of the information regarding the APRs offered by two well-known commercial banks. Bank | APR | Number of Times Compounded | National First | Prime Rate + 6.75% | Semiannually | Regions Best | 13.17 | Monthly | 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...
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...the Best Loan Options 1. Assuming that AirJet Parts, Inc. is considering loans from National First and Regions Best, what are the EARs for these two banks? National First- (1+.0675/2)²-1 = .078890625 Regions Best- (1+.1317/12)¹²-1= .1399478787 Using the Estimated Annual Rate formula, I found that National First estimated annual rate was 7.9% and Regions Best was 13.995% 2. Based on your calculations above, which of the two banks would you recommend and why? Explain your rationale. I would recommend AirJet Parts, Inc. to go with National bank since the interest rate is significantly lower. When you borrow loans, you want to get the interest rate as low as you can since you’re borrowing money. The higher the rate, the more you have to pay; the lower the rate the less you have to pay. 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. To find monthly payment for this loan we need to determine the Present Value of Annuity formula: C [(1-{11+rate}t)/rate] insert the numbers… C[(1-{11.0071666667}60)/.0071666667] PVA= 48.62687143 We now take $6,950,000 and divide it by 48.6287143 to find out our monthly payment C=6,950,000/48.6287143 C= $142,925 After calculating these numbers, I’ve concluded that it’s a good decision for AirJet Best Parts, Inc. to go with this loan. With...
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...Course Project Part 1 Task 1: Assessing loan options for AirJet Best Parts, Inc. (1) EAR of National First Bank loan is 10.25%. APR = 3.25 (Prime Rate) + 6.75 M = 2 (Compounded semiannually) Formula: EAR = (1+APR/M)^M – 1 Solution: 0.1025 = (1+.10/2)^2 – 1 EAR of the Regions Best Bank loan is 13.99%. APR = 13.17 M = 12 (Compounded monthly) Formula: EAR = (1+APR/M)^M – 1 Solution: 0.1399 = (1+.1317/12)^12 – 1 (2) I recommend using National First Bank because the APR and the EAR are lower than Regions Best, which will result in paying back less interest over the course of the loan. (3) The monthly payment amount of the loan is $147,357.20. I agree with this decision because APR and EAR would be lower than National First resulting in paying back less interest over the duration of the loan. I got this answer with the following information and formula in Excel: PV= $6,950,000 r= 8.6% =PMT(rate,nper,PV,FV) m= 5 (years) Task 2: Evaluating Competitor’s Stock (1) The competitor I chose is Raytheon and the rate of return assuming the dividend growth rate is 5% would be 7.57%. Raytheon’s latest dividend amount was obtained from Yahoo Finance and used with the following formula. g = 5% R = ? D1 = 2.2 (dividend amount) P0 = $85.28 (stock price) Formula: R = D1/P0 + g Solution: R = 2.2/85.28 + .05 = .0757 = 7.58% (2) Current share price of Air Jet Best Parts, Inc. is $23.06. Rate of return is...
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...Course Project – Part I AirJet Best Parts, Inc Student: Goldie Scarbrough Course: Finance Instructor: Professor Mike Woodard Date: 03/23/2013 Task 1: Assessing loan options for AirNet Best Parts, Inc The Company needs to finance $8,000,000 for a new factory in Mexico. The funds will be obtained through a commercial loan and by issuing corporate bonds. Here is some of the information regarding the APRs offered by two well-known commercial banks. Bank | APR | Number of Times Compounded | National First | Prime Rate + 6.75% | Semiannually | Regions Best | 13.17 | Monthly | 1. Assuming that AirJet Parts, Inc. is considering loans from National First and Regions Best, what are the EARs for these two banks? National First (Prime rate is 3.25%) +6.75% = 10% Semiannually EAR = (1+.10/2) ^2 – 1 which is 10.25 Regions Best Rate is 13.17% Monthly EAR = (1+.1317/12) ^12 – 1 which is 13.99% 2. Based on your calculations above: which of the two banks would you recommend and why? Explain your rationale. I think that between National First and Regions Best that National first offers the lower rate after computing the EAR. National first is also only compounded semiannually making it lower then Regions Best. The only thing I worry about it the prime rate changing because if it rises a lot then it could possibly become a higher interest rate them Regions best. At the time being if Air jets Best Inc. takes the National First option then that...
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...Course Project Part II Introduction You will assume that you still work as a financial analyst for AirJet Best Parts, Inc. The company is considering a capital investment in a new machine and you are in charge of making a recommendation on the purchase based on (1) a given rate of return of 15% (Task 4) and (2) the firm’s cost of capital (Task 5). Task 4. Capital Budgeting for a New Machine A few months have now passed and AirJet Best Parts, Inc. is considering the purchase on a new machine that will increase the production of a special component significantly. The anticipated cash flows for the project are as follows: Year 1 $1,100,000 Year 2 $1,450,000 Year 3 $1,300,000 Year 4 $950,000 You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is $3,000,000. 1. What is the project’s IRR? IRR % IRR= 22.38% 2. What is the project’s NPV? NPV NPV= $3,450,866.74 3. Should the company accept this project and why (or why not)? I believe the company should look into this. The IRR is greater than the Required Rate of Return and the overall NPV is a gain. There does not appear to be a loss in this asset. 4. Explain how depreciation will affect the present value of the project. Depreciation would cause the project's PV to go up. This would be a good thing when considering the amount of taxes...
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...appear to be a loss in this asset. 4. Explain how depreciation will affect the present value of the project. Depreciation would cause the project's PV to go up. This would be a good thing when considering the amount of taxes the company would save. 5. Provide examples of at least one of the following as it relates to the project: a. Sunk Cost - costs that are non-recoverable and shouldn't be used when considering an investment decision. An example of this would be AirJet has already purchased delivery trucks to deliver parts to vendors/customers. This cost would not be taken into consideration because it has no affect on the purchase of a new machine. This was a purchase that was done prior to any decisions made about buying the new machine. b. Opportunity Cost - This is the most valuable alternative that is given up if a particular investment is undertaken. Most of the time, these costs are overlooked. Example: The managers of AirJet are all called into a company-wide meeting. During this 2 hour meeting, they could have been out on the plant floor making production decisions or solving a problem that may have incurred during this time. This could be a negative type of cost. Positive way, the managers could have their meeting during lunch or possibly on a...
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... By comparing the interest rates Regions Best of 8.6% and National First Bank of 10%, Region Best offers lower interest payments Task 2 1 Using the dividend growth the rate of return for Raytheon with a dividend growth rate of 5% is : 2.31 dividend after one year applying 5% growth 100.96 current stock price 0.022880349 division of D1/current price 0.05 growth factor 7.29% Raytheon return 2 The current share price of AirJet Best Parts, Inc. using the rate of return from Raytheon of 7.29%with the constant growth rate of 1% and dividend per share paid on the stock was $1.50 is: Po=Do*(1+g)/R-g Po=(1.50*1.01)/(.0729-.01) 24.08585056 24.08585056 current price of one share 3 Preferred is paid first, less risky Common stock can be traded, price could go up more Dividend can go up on common but is fixed with preferred Task 3 1 The coupon rate that AirJet Best Parts should use to sell the bonds at par value is 6.92%. INTEREST RATE what is the yield PMT 37.5 (7.5% semiannual) PV (1062.00) Interest Solve Periods 40 (20 years semiannual) Future Value 1000...
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...National First with an APR of 3.25%(Prime Rate) +6.75%=10% The ERA=(1+10%/2)^2 – 1= 10.25% Regions Best 13.17 APR compounded monthly. The ERA = (1+13.17%/12)^12 – 1= 13.99% 2. I would recommend National First Bank, the ERA with NFB is 10.25% and the ERA with Regions Best is 13.99%. National First Bank is calculated semiannually so it is only twice a year but Regions Best is compounded monthly. The APR with National Best is low even if it is Prime. 3. The loan amount is $6,950,000, interest rate is 8.6% APR over 5 years. To do the calculation we work with (loan amount)*(interest rate)/(years) N=60 I=0.7167 PV= 6,950,000 Payment =x The monthly payment for to pay back the loan from Regions Best is $142,926.43. With AirJet taking out a smaller amount for the loan they can pay back the loan faster but if they do not have enough the company won’t be able to finish the project which could result in a huge lose overall. Task 2 1. Growth rate = 5% According to the Dividend Growth Formula R = (D1 / P0)+g Dividend yield = 3.10% per http://ycharts.com/companies/NOC/dividend_yield Dividend per share = Dividend yield * Market price per share Dividend per share = 0.031 * 70.15 Dividend per share = 2.17 R = (2.17 / 70.15) + 0.05 R = 0.031 + 0.05 R = 0.081 R= 8.1% The Rate of Return for Northrup Grumman Corporation is 8.1%. 2. Required Rate of Return = 8.10% Constant Growth Rate in dividends = 1% Dividend per Share = 2.17 D1 = 1.50 * (1+1%)=...
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...Matthew Tango Course Project Part 2 Task 4 1. The project’s IRR is going to be 22%. The way to figure it out is going to be on the excel spreadsheet that is attached to this project 2. To calculate the NPV you are going to use the formula NPV=(1,100,000/1.15)+(1,450,000/1.15)^2+(1,300,000/1.15)^3+ (950,000/1.15)^4-3,000,000=$450,866.74. Attached is the excel spreadsheet that shows the work. 3. Based on what the NPV is for this project the company should definitely consider accepting this project because the NPV is greater than 0. Anytime the NPV is greater than 0 it means it will make the company money so therefore the company should be accepting the project. 4. Well first to answer the question you have to know what depreciation is a non-cash expense that reduces the value of an asset over time. So now knowing that, depreciation is not considered a cash flow but it does generally reduces a company’s tax liability. Anytime you reduce a company’s tax liability it will cause an increase to the present value of the project. 5. So first thing we need to do is explain what each one of these means and then we can relate them to the project. * Sunk Cost: Sunk costs are cost to the company that have already been incurred and cannot be recovered by any means. In this example Air Jet hired a group to come in and evaluate the feasibility and the utility of acquiring a new machine for them to use. Even if the company does not get the machine the money...
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...BUSN379 Course Project Part 1 Task 1: Assessing loan options for AirJet Best Parts, Inc. 1. Regions Best (1+ .1317/12)^12 -1 =0.14 EAR = 14% National First (1+ (6.75+3.25)/2)^2 -1 =.1025 EAR = 10.25% 2. Based on my calculations I would choose the National First loan because the EAR is only 10.25%. The EAR for the Regions Best loan is 14%. The ideal EAR for the company would be the smallest rate. 3. (1+8.6/12)^12 -1 = 8.95%. Monthly payment 8.95% of $6,950,000 = $622,025. By taking a smaller amount loan will save them money that they will need to pay back in the end. If they don’t borrow enough they may end up closing because they ran out of money to get their feet off the ground. It all comes down to saving money now and taking that chance of starting quickly, or spending money now to get the factory set up and make money later. Task 2: Evaluating Competitor’s Stock 1. Lockheed Martin Corporation as of May 12, 2012 Price: 85.21 Dividend: 4.00 Rate of Return 4*(1+.05)/85.21 + .05 =.1204 =12.04% 2. Current Share Price Rate of Return = 12.04% 1.50*(1+.01) / (.1204-.01) =$13.72 3. Preferred Stock Price 1.5 / .1204 =$12.46 I would assume that the stockholder would want the current price to be higher than the preferred price because that would mean the stock is doing better than projected to be...
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...reduce the cost of debt for the company. * Given that, Loan amount=$6,950,000 APR=8.6% So monthly rate of interest=8.6%/12=0.72% Times to maturity=5 years So, number of monthly payment required=60 This is considered a low interest loan on that amount being taken,. Task II: * For Raytheon Co. (RTN): Stock Price=$46.27 Dividend paid=$0.31 Quarterly So, Annual Dividend payment=4*$0.31=$1.24 Dividend Growth=5% For Boeing Co. (BA): Stock Price=$68.14 Dividend paid=$0.42 Quarterly So, Annual Dividend payment=4*$0.42=$1.68 Dividend Growth=5% For Lockheed Martin Corporation (LMT): Stock Price=$75.15 Dividend paid=$0.57 Quarterly So, Annual Dividend payment=4*$0.57=$2.28 Dividend Growth=5% * We have for AirJet Best Parts, Inc.,, Required rate of return=(7.68%+7.47%+8.03%)/3=7.73% Dividend Growth rate=1% Dividend Paid=$1.50 * We have, Required rate of return=7.73% Dividend on the preferred stock=$1.50 Common stock price is higher because the dividend for the common stock is increasing with a growth rate of 1%. * If the company announces to increase the dividend at the end of the year would increase then in this situation the price of the stock would go up as it will attract the investor with more return. But if the required rate of return increases then in this situation the price of the stock will go down. Increase in dividend increases the stock price where decrease tends to decrease the stock price....
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...Course Project – Part I Task 1: Assessing loan options for Air Jet Best Parts, Inc. The company needs to finance $8,000,000 for a new factory in Mexico. The funds will be obtained through a commercial loan and by issuing corporate bonds. Here is some of the information regarding the APRs offered by two well-known commercial banks. Bank APR Number of Times Compounded National First Prime Rate + 6.75% Semiannually Regions Best 13.17 Monthly 1. Assuming that Air Jet 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. (25 pts.) Bank Prime Loan Rate as of Jan 26, 2013 – 3.25% according to the Federal Reserve Bank of St. Louis. National First - EAR EAR = (1+(Prime Rate +6.75%)/2)^2-1 EAR = (1+(3.25% + 6.75%)/2)^2–1 EAR = (1+.10/2)^2–1 EAR = (1.05)^2-1 EAR = 1.1025-1 EAR = .1025 EAR = 10.25% Regions Best - EAR EAR = (1+13.17%/12)^12-1 EAR = (1+0.010975)^12-1 EAR = (1.010975)^12-1 EAR = 1.13995-1 EAR = 0.13995 EAR = 13.995% EAR = 14% 2. Based on your calculations above, which of the two banks would you recommend and why? Explain your rationale. (25 pts.) I would suggest that Jet Air go with National First to get their loan. I say this because of the lower...
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...Abstract: Process industries, especially textile industries, have automatic machinery which are highly inflexible and have high volume/low variety products. This nature of the textile industry makes implementing lean manufacturing techniques a challenge; hence implementing lean techniques in a textile industry has been taken up as a challenge. We have chosen a combination of value stream mapping (VSM), 5S, kanban, kaizen, poka-yoke, and visual controls to improve the processes. The findings of this study reveal that a thorough analysis of the process, setup, and changeover time (CO), use of colour coding for identification of volume-mix, use of kaizen and quality circles which empower the workforce, are some of the various keys to a successful lean implementation in a textile industry. Keywords:Project manegement; lean manufacturing; agile manufacturing; value stream mapping; VSM; supply chain management. 1 Introduction What Is a Project Manager? SECTION 1: INTRODUCTION TO PROJECT MANAGEMENT Project management is the art of matching a project's goals, tasks, and resources to accomplish a goal as needed. We say "as needed" because one has limited time, money, and resources (human and machinery) with which to accomplish a goal. One can think of a project as a process. Figure 1 shows this process as a simplified block diagram. Figure 1: Simple Project Management System The process involves inputs and outputs. Successful projects "do the right things, with the right...
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