Course Project Part IIntroductionThe Course Project is an opportunity for you to apply concepts learned to a real-life simulationexperience. Throughout the Course Project, you will assume that you work as a financial analystfor 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, aswell as to valuate stocks and bonds.Part II In Part II, you will provide the company with a recommendation for purchasing a newmachine. You will base your recommendation on the Net Present Value (NPV) of the capitalinvestment 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 andairplane 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 $8,000,000 for a new factory in Mexico. The funds will beobtained through a commercial loan and by issuing corporate bonds. Here is some of theinformation regarding the APRs offered by two well-known commercial banks.BankAPRNational FirstPrime Rate +6.75%13.17Regions BestNumber of TimesCompoundedSemiannuallyMonthly1. Assuming that AirJet Parts, Inc. is considering loans from National First and RegionsBest, what are the EARs for these two banks? Hint for National Bank: Go to the St. LouisFederal Reserve Boards website (http://research.stlouisfed.org/fred2/). Select InterestRates and then Prime Bank Loan Rate. Use the latest MPRIME. Show yourcalculations. (15 pts)2. Based on your calculations above, which of the two banks would you recommend andwhy? Explain your rationale. (15 pts)3. AirJet Best Parts, Inc. has decided to take a $6,950,000 loan being offered by RegionsBest at 8.6% APR for 5 years. What is the monthly payment amount on this loan? Doyou agree with this decision? Explain your rationale. (20 pts)Task 2: Evaluating Competitors StockAirJet Best Parts, Inc. is concerned regarding recent changes in its stock prices for the companyand would like to determine the stock prices for key competitors. Key competitors includeRaytheon, Boeing, Lockheed Martin, and the Northrop Grumman Corporation.1. Using the dividend growth model and assuming a dividend growth rate of 5%, what isthe rate of return for one of three key competitors? Use Yahoo Finance to obtain thelatest 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 AirJet BestParts, Inc. if the company maintains a constant 1% growth rate in dividends and themost recent dividend per share paid on the stock was $1.50? Show yourcalculations. (10 pts)3. Assume AirJet Best Parts has also a preferred stock issue. The most recent dividendper share paid on the stock was also $1.50, the same as the common stock. Whichone 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 AirJet Best Parts, Inc.announces that dividends at the end of the year will increase? What if the requiredrate of return increases? What changes in dividends will affect the stock price andhow? (10 pts)Task 3: Bond EvaluationAirJet Best Parts, Inc. would like to issue 20-year bonds to obtain remaining funds for the newMexico plant. The company currently has 7.5% semiannual coupon bonds in the market that sellfor $1,062 and mature in 20 years.1. What coupon rate should AirJet Best Parts set on its new bonds to sell them at parvalue? (10 pts)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 yourrationale. (20 pts)4. What type of positive and negative covenants may AirJet Best Parts, Inc. use in futurebond issues? (10 pts)
