Busn379 Course Project Part 1

Task 1 1. Regions Best: (1+.1317/12)^12-1= .14 EAR= 14% National First: (1+(6.75+3.25)/2)^2-1= .1025 EAR= 10.25%

2. The obvious choice is National First Loan because its EAR is 10.25% which is lower than Regions Best at 14%.

3. (1+8.6/12)^12-1= 8.95% Monthly Payment 8.95% of $6,950,000= $622,025 The greatest cost for a new company is start up. If a starting company does not have enough money to get off the ground and they need to take a loan to cover the start up expenses the smarter choice is to take on a loan that will cover all expenses, and even extra for any incidentals. It is not worth it to take a loan if it is not enough to cover the costs that the loan was needed for in the first place. Also in regards to a bigger loan amount if not all the funds are needed the loan essentially can be used to start paying it back. While the company may eat some loss in interest the loss would be far greater if the business fails to start making money at all.

Task 2 1. Lockheed Martin Corp. As of Jan 25, 2013 Price $92.39 Dividend 4.6 Rate of return 4.6*(1+.05)/92.39+.05= .2440 24.4%

2. Current share Price 24.4% Rate of return 1.5*(1+.01)/(.244-.01)= $6.23 3. Preferred Stock Price 1.5/.244= $6.15 The current share price is higher than the preferred price however a greater current share price would obviously be better. 4. If dividends increase the price of stock will rise. If required rate of return increases then it would lower the current price. If there is a positive change in the dividend the the stock price should also increase and vice versa.

Task 3 1. 2. Coupon rate is the fixed rate of income which a bond provides in for the purchase of the bomb. YTM is the annual interest rate that exists in the market to show if the coupon rate that is given is overvalued, undervalued, or normal. 3. When the coupon rates are lower than compared to the boond that has a higher coupon amount to the investor there is a higher price risk. If there is a higher coupon there should be a higher YTM for the bond as well. If the YTM is high then the coupon rate should be high. The longer the maturity the higher the risk is of reinvestment . An investor will want to be sure they receive the best coupon for the bond purchase. 4. Positive: a. Must maintain a minimum level of net working capital b. Must file quarterly financial statements c. Must maintain a certain level of debt coverage Negative: a. Limit dividends b. Cannot liquidate major assets without lenders permission c. Cannot offer any assets to other loaners