Ask Question, Ask an Expert


Ask Basic Finance Expert


The Project is an opportunity for you to apply concepts learned to a real-life simulation experience. During the Course Project, you will

suppose that you work as a financial analyst for AirJet Best Parts, Inc. The 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 buying a new machine. You will base your recommendation on the Net Present Value (NPV) of the capital investment project by using the cost of capital (WACC) as your discount rate.

About AirJet Best Parts, Inc.

AirJet Best Parts, Inc. is a company dedicated to design and manufacturing of aviation and airplane technologies and parts. The company has commercial and military clients worldwide.

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

The company require finance $8,000,000 for a new factory in the Mexico. The funds will be obtained by a commercial loan and through 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%                      Semi-annually
Regions Best           13.17                                        Monthly

1. Supposing that AirJet Parts, Inc. is considering loans from the 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 ( Choose “Interest Rates” and then “Prime Bank Loan Rate”. Use the newest MPRIME. Show your computation.

Use formula: EAR = (1+quoted rate/m)little m -1
3% is prime + 6.75%

2. Based on your computation above, which of the two banks would you suggest and why? Elucidate your rationale.

3. AirJet Best Parts, Inc. has decided to acquire a $6,950,000 loan being offered by the Regions Best at 8.6% APR for 5 years. What is monthly payment amount on this loan? Do you agree with this judgment? Elucidate your rationale.

Task 2: Evaluating Competitor’s Stock

AirJet Best Parts, Inc. is concerned regarding recent changes into its stock prices for the company and would like to find out 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 supposing a dividend growth rate of 5%, what is the rate of return for one of three key competitors? Use Yahoo Finance to acquire the latest dividend amount and price for one selected company.

2. Using the rate of return above, what must be the current share price of AirJet Best Parts, Inc. if the company maintains a steady 1% growth rate in the dividends and the most recent dividend per share paid on the stock was $1.50? Show your computation.

3. Suppose AirJet Best Parts has also a preferred stock issue. The most recent dividend per share paid on stock was also $1.50, same as the common stock. Which one would you believe has a higher price, the preferred stock or the current stock? Elucidate your rationale.

4. What would happen with the price you find outd above if AirJet Best Parts, Inc. announces that dividends at the ending of the year will raise? What if the required rate of return increases? What changes in dividends will affect stock price and how?

Task 3: Bond Evaluation

AirJet Best Parts, Inc. would like to issue 20-year bonds to get remaining funds for the New Mexico plant. The company currently has 7.5% semiannual coupon bonds in market that sell for $1,062 and mature in 20 years.

1. What coupon rate must AirJet Best Parts set on its new bonds to sell them at par value?

2. What is the differentiation between the coupon rate and the YTM of bonds?

3. What factors will contribute to riskiness of these bonds? Elucidate in detail your rationale.

4. What type of positive and negative covenants might AirJet Best Parts, Inc. use in future bond issues?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91127

Have any Question? 

Related Questions in Basic Finance

1 describe in your words the meaning of spatialtemporal

1. Describe in your words the meaning of spatial/temporal integration in logistical system integration. 2. What justification of logic can be presented to support the placement of a warehouse in a logistical system? 3. W ...

1 outline the differences between npv irr and pi what are

1. Outline the differences between NPV, IRR, and PI. What are the advantages and disadvantages of each technique? Do they agree with regard to simple accept or reject decisions? 2. Under what circumstances will the NPV, ...

You own 21500 of city steel stock that has a beta of 332

You own $21,500 of City Steel stock that has a beta of 3.32. You also own $38,500 of Rent-N-Co (beta = 1.77) and $20,700 of Lincoln Corporation (beta = -.83). What is the beta of your portfolio?

Bob entered into a land contract to purchase real estate

Bob entered into a land contract to purchase real estate from Sam. The purchase price was to be paid over a 10-year period by monthly amortization. At the end of five years, Bob defaulted, having failed to make his requi ...

Why do higher interest rates lead to higher call option

Why do higher interest rates lead to higher call option prices but lower put option prices? Suppose a European put price exceeds the value predicted by put-call parity. How could an investor profit? Demonstrate that your ...

Assume for this question only that kenny and melissa were

Assume, for this question only, that Kenny and Melissa were married today. They went straight to Kenny's lawyer's office to execute new wills. On the way home from executing a valid will leaving all assets to Melissa, Ke ...

Compare and contrast the fixed exchange rate free floating

Compare and contrast the fixed exchange rate, free floating, and managed floating systems? How can central banks use direct intervention to move the value of a currency? List and discuss the advantages and disadvantages ...

Finance assignmentcreate a 1050-word report and include the

Finance Assignment Create a 1,050-word report, and include the following: • Explain the relationship between risk and return • Identify an example of risk and return. • Explain which is more risky bonds or common stocks. ...

An investor has projected three possible scenarios for a

An investor has projected three possible scenarios for a project as follows: Pessimistic-NOI will be $200,000 the first year, and then decrease 2 percent per year over a five-year holding period. The property will sell f ...

Some machines require two registers for certain

Some machines require two registers for certain single-precision values. Suppose that the result of a multiplication of single-register quantities requires two consecutive registers, and when we divide a=b, the value of ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen