Dont Pay Attention To What I Marked It Was An Accident If Any Of Them ✓ Solved

Dont pay attention to what I marked it was an accident. If any of them were marked it was an accident 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 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 ,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 ( ). Select “Interest Rates†and then “Prime Bank Loan Rateâ€. Use the latest MPRIME. Show your calculations. (15 pts) 2.

Based on your calculations above, which of the two banks would you recommend and why? Explain your rationale. (15 pts) 3. AirJet Best Parts, Inc. has decided to take a ,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) 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 Yahoo Finance to obtain the latest dividend amount and price for one selected company. (15 pts) 2.

Using the rate of return above, what should be the current share price of Air Jet Best Parts, Inc. if the company maintains a constant 1% growth rate in dividends and the most recent dividend per share paid on the stock was .50? Show your calculations. (10 pts) 3. Assume Air Jet Best Parts has also a preferred stock issue. The most recent dividend per share paid on the stock was also .50, the same as the common stock. Which one would you think has a higher price, the preferred stock or the current stock?

Explain your rationale. (5 pts) 4. What would happen with the price you computed above if Air Jet Best Parts, Inc. announces that dividends at the end of the year will increase? What if the required rate of return increases? What changes in dividends will affect the stock price and how? (10 pts) Task 3: Bond Evaluation Air Jet Best Parts, Inc. would like to issue 20-year bonds to obtain remaining funds for the new Mexico plant. The company currently has 7.5% semiannual coupon bonds in the market that sell for ,062 and mature in 20 years.

1. What coupon rate should Air Jet Best Parts set on its new bonds to sell them at par value? 2. What is the difference between the coupon rate and the YTM of bonds? (10 pts) 3. What factors will contribute to the riskiness of these bonds?

Explain in detail your rationale. 4. What type of positive and negative covenants may Air Jet Best Parts, Inc. use in future bond issues? Course Project -Part II Introduction You will assume that you still work as a financial analyst for Air Jet 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 Air Jet 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 ,100,000 Year 2 ,450,000 Year 3 ,300,000 Year 4 0,000 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