Course Project 1

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Course Project – Part I © The content of this document is the property of Wendell W. Bragg and DeVry University. No portion of this document may be reproduced in any manner except as a homework assignment submission. Duplication, reproduction or display either physically or electronically for any other purpose without the author’s written consent is prohibited. Introduction The Course Project is an opportunity for you to apply concepts learned to a real-life simulation experience. Throughout the Course Project, you will assume that you work as a financial analyst for Aero Plain, Inc. The Course Project is provided in two parts as follows: Part I – In Part I, you work with Aero Plain, Inc. staff to identify the best loan…show more content…
What are the monthly payments and the total of the payments on this loan? Does this new information change your previous decision? Show your calculations and explain your rationale. (20 pts) 7,500,000/47= 159,574 Task 2: Bond Evaluation Aero Plain, Inc. is also considering the issue of new, 20-year bonds to obtain the needed funds for the new plant in Mexico. The company currently has 6.5% semiannual coupon bonds in the market selling for $1,052 that mature in 20 years. 1. What coupon rate should Aero Plain set on its new bonds so that the selling price is equal to the par value? Show your calculations and explain. (10 pts) The company should set the coupon rate on its new bonds equal to the required returns. And the rate to be is 6.90 2. What is the difference between the coupon rate and the YTM of bonds? (10 pts) Coupon rate is fixed and determines what the bonds coupon will be. The required return is what investor actually demands on the issue and it will fluctuate through time. 3. What factors will contribute to the riskiness of these bonds? Please explain. (10 pts) The minimum interest rate risk and the default risk. 4. What type of positive and negative covenants might Aero Plain use in future bond issues? (10 pts) A positive covenant would reduce the coupon rate. The negative side is that the company is restricted in its actions, and the positive covenant may force the company into actions in the future that

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