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Course Project Part 1

In: Business and Management

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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 at that point in time.

4. If the dividends are increased the price of the stock will rise. If the required rate of return increases then it would lower the current price of the stock. So in theory if there is a positive change in dividend, then the stock price will increase. If there is a negative change then the stock price will decrease.

Task 3: Bond Evaluation

1. 6.92% 2.…...

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