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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 is 3.74 percent less they would be paying if they had gone with Regions Best. This would be the better option because you will pay less interest over time for the loan amount. 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

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