The company needs to finance $8,000,000 for a new factory in Mexico. The funds w
ID: 2682430 • Letter: T
Question
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
Explanation / Answer
It's currently 3.25% so 3.25+6.75=10%. r=(1+i/n)^n-1 r=(1+.1/2)^2-1=10.25% or r=(1+.1317/12)^12-1=13.99% The first National Prime is better. Always use the Effective rate to compare. So N=5*12 I=8.6%/12 PV=-6950000 FV=0 PMT=? we get $142,925.09 as the payment. Yes, 8.6% was less than either.