Mini Project Instructions :Youll have to use Microsoft Excel to solve this assignment and submit (upload) your Excel file into Blackboard.Excel Notes :Use Excel to actually calculate numeric results. Nevertheless, to show the procedure used, pleaseclearly identify the names of your variables (both input and output). In case a formula is needed, please type it nearyour input variables. Highlight or put a box around your main answers. Write your name and date on a title page.Suggestions (how to solve this assignment): Review the Self-Test at the end of each chapter. Ask your classmates orcontact me directly with your questions.Please find the attached template XL file, which can be used as a starting point of your project(Amortization table.xlsx).MORTGAGE COMPARISONMark Sexton and Todd Story, the owners of S&S Air, Inc., were impressed by the work Chris had done on financialplanning. Using Chriss analysis, and looking at the demand for light aircraft, they have decided that their existingfabrication equipment is sufficient, but it is time to acquire a bigger manufacturing facility. Mark and Todd haveidentified a suitable structure that is currently for sale, and they believe they can buy and refurbish it for about$83 million. Mark, Todd, and Chris are now ready to meet with Christie Vaughan, the loan officer for First UnitedNational Bank. The meeting is to discuss the mortgage options available to the company to finance the new facility.Christie begins the meeting by discussing a 30-year mortgage. The loan would be repaid in equal monthly install-ments. Because of the previous relationship between S&S Air and the bank, there would be no closing costs for theloan. Christie states that the APR of the loan would be 2.97 percent. Todd asks if a shorter mortgage loan is available.Christie says that the bank does have a 20-year mortgage available at the same APR.Mark decides to ask Christie about a smart loan he discussed with a mortgage broker when he was refinancinghis home loan. A smart loan works as follows : Every two weeks a mortgage payment is made that is exactly one-halfof the traditional monthly mortgage payment. Christie informs him that the bank does have smart loans. The APRof the smart loan would be the same as the APR of the traditional loan. Mark nods his head. He then states this isthe best mortgage option available to the company since it saves interest payments.Christie agrees with Mark, but then suggests that a bullet loan, or balloon payment, would result in the greatestinterest savings. At Todds prompting, she goes on to explain a bullet loan. The monthly payments of a bullet loanwould be calculated using a 30-year traditional mortgage. In this case, there would be a 5-year bullet. This would meanthat the company would make the mortgage payments for the traditional 30-year mortgage for the first five years, butimmediately after the company makes the 60thpayment, the bullet payment would be due. The bullet payment isthe remaining principal of the loan. Chris then asks how the bullet payment is calculated. Christie tells him that theremaining principal can be calculated using an amortization table, but it is also the present value of the remaining 25years of mortgage payments for the 30-year mortgage.Todd has also heard of an interest-only loan and asks if this loan is available and what the terms would be. Christiesays that the bank offers an interest-only loan with a term of 10 years and an APR of 2.95 percent. She goes onto further explain the terms. The company would be responsible for making interest payments each month on theamount borrowed. No principal payments are required. At the end of the 10-year term, the company would repay the$83 million. However, the company can make principal payments at any time. The principal payments would workjust like those on a traditional mortgage. Principal payments would reduce the principal of the loan and reduce theinterest due on the next payment.Mark and Todd are satisfied with Christies answers, but they are still unsure of which loan they should choose. They have asked Chris to answer the following questions to help them choose the correct mortgage.1

Mini Project :1 - Time Value of Money2

Questions

1. What are the monthly payments for a 30-year traditional mortgage? What are the payments for a 20-yeartraditional mortgage?

2. Prepare an amortization table for the first six months of the traditional 30-year mortgage. How much of the first payment goes toward principal?

3. How long would it take for S&S Air to pay off the smart loan assuming 30-year traditional mortgage payments? Why is this shorter than the time needed to pay off the traditional mortgage? How much interest would the company save?

4. Assume S&S Air takes out a bullet loan under the terms described. What are the payments on the loan?

5. What are the payments for the interest-only loan?

6. Which mortgage is the best for the company? Are there any potential risks in this action?

HINT: Use one Excel sheet for each loan mentioned in the case. Once all numbers are available, create tables to compare all options to answer the case question