Submitted By jkfox

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Words 1699

Pages 7

COURSE PROJECT 1

Jacqueline Foxwell

DeVry University, Busn 379

March 19, 2011

Course Project – Part 1

Task 1: Assessing the loan options for Air Best Parts Inc.

1) Air Best Parts is currently seeking loans from National First Bank and Regions Best. National First bank is offering loans at Prime Rate + 6.75% compounded semiannually, while Regions Best is offering 13.17% compounded monthly. Both of these rates are stated rates, and in order to compare these two loan options, the stated rates or APRs must be converted to effective rates. The Prime Rate for National First is 3.25%. Below are the EARs for both banks:

National First: (3.25 + 6.75 = 10%)

[1 + (0.10/2)]^2 -1 = 0.1025 or 10.25%

Regions Best:

[1 + (0.1317/12)]^12 – 1 = 0.1399 or 13.99%

2) Based on the calculations above, it is recommended that Air Best Parts Inc. use National First Bank as opposed to Regions Best. The effective rate for National First is 10.25%, which is 3.74% lower than what is being offered by Regions Best. The effective rate is exactly what Air Best Parts will be paying back to the bank in the form of interest to the bank for borrowing money. Since this will be additional money on top of the principal, the goal is to minimize the amount of interest Air Best Parts will have to pay. Going with National First Bank will save the company money.

3) Taking a $6,950,000 loan at 8.6% APR for five years, Air Best Parts can expect their monthly payments to be about $143,059.16. Below is the calculations for the monthly payment:

The first thing we need to do is find the annuity factor for 60 periods at 0.72 % per period:

Annuity PV factor = (1- PV factor)/r

= [1-(1/1.0072^60)]/ .0072

=48.5813

Now, we can determine the monthly payments:

$6,950,000 = C * Annuity PV factor

Rearranging the equation, so that we can solve for C:

C=…...

...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? (10 pts) 22.38% 2. What is the project’s NPV? (15 pts) 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 3. Should the company accept this project and why (or why not)? (5 pts) In looking at the overall analysis of the project, I believe it would be beneficial to accept the project because, the projects (IRR) Internal Rate Return are greater than the (RRR) Required Rate of Return and the overall (NPV) Net Present Value is positive meaning the value...

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...Course Project – Part I 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 Air Jet Best Parts, Inc. The Course Project is provided in two parts as follows: Part I – In Part I, you work with Air Jet 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 Air Jet Best Parts, Inc. Air Jet 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 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...

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...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 the Coca Cola Company. The Course Project is provided in two parts as follows: Part I – In Part I, you work with Coca Cola's 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. This course project requires that you show all your calculations and in some cases, the information obtained on companies over the web. Acceptable ways to show your calculations include: 1. Write your formulas and numbers used. 2. Attach an excel sheet to your work. 3. Copy/paste a snapshot of an online calculation or website. 4. A link to the website used, the calculator used listing all the variables used under each box. Task 1: Assessing loan options for Coca Cola. 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 + 7.75% Monthly...

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...DeVry BUSN-379 Course Project – Part I 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/). Select “Interest Rates” and then “Prime Bank Loan Rate”. Use the latest MPRIME. Show your calculations. MPRIME rate at 3.25% National First EAR rate =[1+ (3.25%+ 6.25%)/2] ^2-1 = 9.98% OR (6.75 + 3.25%) =10% Regions Best =[1+(3.25%+13.17%)/12]^12-1 =13.99% 2. Based on your calculations above, which of the two banks would you recommend and why? Explain your rationale. I would recommend taking the loan from National First as they have a lower EAR of 10% than Regions of 13.99%. Also because National First interest is compounded semi-annually as opposed to Regions which is done monthly: and will result in higher payments because of the frequency in compounding. 3. AirJet Best Parts, Inc. has decided to take a $6,950,000 loan being...

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...BUSN 379 Final Exam Purchase here http://devrycourse.com/BUSN%20379/busn-379-final-exam Product Description 1. (TCO 4) Which of the following is true regarding the evaluation of projects? 2. (TCO 4) Which of the following investment ranking methods does not consider the time value of money? 3. (TCO 3 and 4) You can ensure that an investment is expected to create value for 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent? 5. (TCO 4) Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? 6. (TCO 4) The postponement of a project until conditions are more favorable: 7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. 8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? 9. (TCO 4) Assume Company X plans to invest $60,000 in industrial equipment. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the...

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...BUSN 379 Final Exam Purchase here http://homeworkonestop.com/BUSN%20379/busn-379-final-exam BUSN 379 Final Exam 1. (TCO 4) Which of the following is true regarding the evaluation of projects? 2. (TCO 4) Which of the following investment ranking methods does not consider the time value of money? 3. (TCO 3 and 4) You can ensure that an investment is expected to create value for 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent? 5. (TCO 4) Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? 6. (TCO 4) The postponement of a project until conditions are more favorable: 7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. 8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? 9. (TCO 4) Assume Company X plans to invest $60,000 in industrial equipment. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the...

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...BUSN 379 Final Exam Purchase here http://homeworkonestop.com/BUSN%20379/busn-379-final-exam BUSN 379 Final Exam 1. (TCO 4) Which of the following is true regarding the evaluation of projects? 2. (TCO 4) Which of the following investment ranking methods does not consider the time value of money? 3. (TCO 3 and 4) You can ensure that an investment is expected to create value for 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent? 5. (TCO 4) Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? 6. (TCO 4) The postponement of a project until conditions are more favorable: 7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. 8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? 9. (TCO 4) Assume Company X plans to invest $60,000 in industrial equipment. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the...

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...BUSN 379 Final Exam Purchase here http://homeworkonestop.com/BUSN%20379/busn-379-final-exam BUSN 379 Final Exam 1. (TCO 4) Which of the following is true regarding the evaluation of projects? 2. (TCO 4) Which of the following investment ranking methods does not consider the time value of money? 3. (TCO 3 and 4) You can ensure that an investment is expected to create value for 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent? 5. (TCO 4) Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? 6. (TCO 4) The postponement of a project until conditions are more favorable: 7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. 8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? 9. (TCO 4) Assume Company X plans to invest $60,000 in industrial equipment. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the...

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...BUSN 379 FINAL EXAM To purchase this visit following link: http://www.activitymode.com/product/busn-379-final-exam/ Contact us at: SUPPORT@ACTIVITYMODE.COM BUSN 379 FINAL EXAM BUSN 379 Final Exam 1. (TCO 4) Which of the following is true regarding the evaluation of projects? 2. (TCO 4) Which of the following investment ranking methods does not consider the time value of money? 3. (TCO 3 and 4) You can ensure that an investment is expected to create value for 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent? 5. (TCO 4) Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? 6. (TCO 4) The postponement of a project until conditions are more favorable: 7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. 8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? 9. (TCO 4) Assume Company X plans to invest $60,000 in industrial...

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...Devry BUSN 379 Complete Course-Latest 2015 December (All Discussions ,All Cases And All Homework And Final) IF You Want To Purchase A+ Work then Click The Link Below For Instant Down Load http://www.hwspeed.com/Devry-BUSN-379-Complete-Course-Latest-2015-December-112045745.htm?categoryId=-1 IF You Face Any Problem Then E Mail Us At JOHNMATE1122@GMAIL.COM Question Devry BUSN379 Week 1 Discussion 1 & 2 Latest 2015 October Discussion 1 What are some of the most important financial management decisions? Can you provide some real-life examples? Discussion 2 Do you believe that the firm’s social responsibilities conflict with the ultimate goal of shareholder’s wealth maximization? Consider issues such as the protection of the environment and the creation of jobs. Devry BUSN379 Week 2 Discussion 1 & 2 Latest 2015 October Discussion 1 Why does money have a time value? Can you provide at least one real-life scenario in which you can apply the concept of time value of money? Discussion 2 What is the difference between the annual percentage rate (APR) and the effective annual rate (EAR)? Which rate do you believe is more relevant for financial decisions and why? Devry BUSN379 Week 3 Discussion 1 & 2 Latest 2015 October Discussion 1 What are some of the most important risks associated with bonds? Discussion 2 • Are there any instances in which companies should not pay dividends? • How do dividends impact the value of a share of stock? Devry BUSN379...

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...BUSN 379 Midterm Exam Click Link Below To Buy: http://hwcampus.com/shop/busn-379-midterm-exam/ 1. (TCO 1) What is the goal of financial management for a sole proprietorship? (Points : 3) decrease long-term debt to reduce the risk to the owner maximize net income given the resources of the firm maximize the market value of the equity minimize the tax impact on the proprietor minimize costs and increase production 2. (TCO 1) Working capital management includes which of the following? (Points : 3) establishing the inventory level deciding when to pay suppliers determining the amount of cash needed on a daily basis establishing credit terms for customers all of the above 3. (TCO 1) Market value reflects which of the following: (Points : 3) The amount someone is willing to pay today for an asset. The value of the asset based on generally-accepted accounting principles. The asset’s historical cost. A and B only None of the above 4. (TCO 1) Which of the following is true regarding income statements? (Points : 3) It shows the revenue and expenses, based upon selected accounting methods. It reveals the net cash flows of a firm over a stated period of time. It reflects the financial position of a firm as of a particular date. It records revenue only when cash is received for the product or service provided. It records expenses based on the recognition principle 5. (TCO 1) Tato’s Pizza has sales of $625,000. They paid $43,000 in interest...

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...BUSN 379 Midterm Exam Click Link Below To Buy: http://hwcampus.com/shop/busn-379-midterm-exam/ 1. (TCO 1) What is the goal of financial management for a sole proprietorship? (Points : 3) decrease long-term debt to reduce the risk to the owner maximize net income given the resources of the firm maximize the market value of the equity minimize the tax impact on the proprietor minimize costs and increase production 2. (TCO 1) Working capital management includes which of the following? (Points : 3) establishing the inventory level deciding when to pay suppliers determining the amount of cash needed on a daily basis establishing credit terms for customers all of the above 3. (TCO 1) Market value reflects which of the following: (Points : 3) The amount someone is willing to pay today for an asset. The value of the asset based on generally-accepted accounting principles. The asset’s historical cost. A and B only None of the above 4. (TCO 1) Which of the following is true regarding income statements? (Points : 3) It shows the revenue and expenses, based upon selected accounting methods. It reveals the net cash flows of a firm over a stated period of time. It reflects the financial position of a firm as of a particular date. It records revenue only when cash is received for the product or service provided. It records expenses based on the recognition principle 5. (TCO 1) Tato’s Pizza has sales of $625,000. They paid $43,000 in interest...

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...Running head: COURSE PROJECT 1 COURSE PROJECT 1 Jacqueline Foxwell DeVry University, Busn 379 March 19, 2011 Course Project – Part 1 Task 1: Assessing the loan options for Air Best Parts Inc. 1) Air Best Parts is currently seeking loans from National First Bank and Regions Best. National First bank is offering loans at Prime Rate + 6.75% compounded semiannually, while Regions Best is offering 13.17% compounded monthly. Both of these rates are stated rates, and in order to compare these two loan options, the stated rates or APRs must be converted to effective rates. The Prime Rate for National First is 3.25%. Below are the EARs for both banks: National First: (3.25 + 6.75 = 10%) [1 + (0.10/2)]^2 -1 = 0.1025 or 10.25% Regions Best: [1 + (0.1317/12)]^12 – 1 = 0.1399 or 13.99% 2) Based on the calculations above, it is recommended that Air Best Parts Inc. use National First Bank as opposed to Regions Best. The effective rate for National First is 10.25%, which is 3.74% lower than what is being offered by Regions Best. The effective rate is exactly what Air Best Parts will be paying back to the bank in the form of interest to the bank for borrowing money. Since this will be additional money on top of the principal, the goal is to minimize the amount of interest Air Best Parts will have to pay. Going with National First Bank will save the company money. 3) Taking a $6,950,000 loan at 8.6% APR for five years, Air Best Parts can expect their...

Words: 1699 - Pages: 7