Essay Busn379 Project Part 1

1161 Words Nov 2nd, 2012 5 Pages
BUSN-379
Course Project – Part 1

Task 1: Assessing loan options for AirJet 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? Hint for National Bank: Go to the St. Louis Federal Reserve Board’s website (http://research.stlouisfed.org/fred2/). Select “Interest Rates” and
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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) A. Raytheon Dividend: 2.00 Yield 3.44% Stock Price: 58.11 Growth: 5% (Dividend per Share/Stock Price)+Growth (2.00/58.11)+5 = 5.03% Required rate of return (Raytheon) = 5.03%

2. Using the rate of return above, what should be the current share price of AirJet 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 $1.50? Show your calculations. (10 pts)

Required rate of return (Raytheon) = 5.03% Growth = 1% Dividend per share = 1.50

D1= D0 x (1-growth rate) = 1.50x (1-1%) = $1.52 Current share price = 1.52/ (5.03-1%) = $30.22 Current share price = $30.22

3. Assume AirJet Best Parts has also a preferred stock issue. The most recent dividend per share paid on the stock was also $1.50, the same as the common

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