BUSN 379 DeVry Week 4 Case Study

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BUSN 379 DeVry Week 4 Case Study

BUSN379

BUSN 379 DeVry Week 4 Case Study

Case II is due at the end of this week. For this assignment, prepare a memo in Word, which answers the questions in the Chapter 5 case, S & S Air’s Mortgage, on page 165 of the textbook. Use Excel to do any financial calculations. You will be graded on correct financial analysis, proper use of technology, and business-like presentation.

Good work effort with Week 4 Case Study II.

  1. Mortgage Payments(10/10)
  2. What are the monthly payments for a 30-year traditional mortgage?
  3. What are the monthly payments for a 20-year traditional mortgage?
  4. Amortization (15/15)
  5. Prepare an amortization table for the first six months of the traditional 30-year mortgage.

Year    / Beginning Balance / Total Payment / Interest Paymt / Principal Paymt / Ending Balance

1          / $35,000,000.00 / 212,098.17 / 177,916.67 / 34,181.51 / 34,965,818.49

2          / 34,965,818.49 / 212,098.17 / 177,742.91 / 34,355.26 / 34,931,463.23

3          / 34,931,463.23 / 212,098.17 / 177,568.27 / 34,529.90 / 34,896,933.32

4          / 34,896,933.32 / 212,098.17 / 177,392.74 / 34,705.43 / 34,862,227.89

5 / 34,862,227.89 / 212,098.17 / 177,216.33 / 34,881.85 / 34,827,346.04

6 / 34,827,346.04 / 212,098.17 / 177,039.01 / 35,059.17 / 34,792,286.88

  1. How much of the first payment goes toward principal? Hint: just pull this number from your table.
  2. Smart Loan (25/25)
  3. How long would it take for S&S Air to pay off the smart loan assuming 30-year traditional mortgage payments? Hint: The payment for a loan repaid with equal payments is the annuity payment with the loan value as the PV of the annuity.

Bi-weekly payoff =

Bi-weekly payoff =

  1. Why is this shorter than the time needed to pay off the traditional mortgage?

The bi-weekly payments pay off the loan quicker for two reasons. First, one-half of the payment gets to the bank quicker each month, which reduces the interest that accrues each month. Second, the company is actually making 13 full payments each year (26 bi-weekly periods amounts to 13 monthly payments).

  1. How much interest would the company save?
  2. Assume S&S Air takes out a bullet loan under the terms described. What are the payments on the loan?(15/15)
  3. Monthly payments
  4. Bullet Payment
  5. What are the payments for the interest-only loan?(15/15)
  6. Which mortgage is the best for the company? Are there any potential risks in this action?(10/10)