DEVRY BUSN379 ALL WEEKS CASES [ TOTAL 3 CASES ] Question # 00066236 Posted By: vikas Updated on: 05/02/2015 12:19 AM Due on: 06/12/2015 Subject Business Topic General Business Tutorials: 1 See full Answer Question CASE 4CaseCase 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.Park Sexton and Todd Story, the owners of S&S Air, Inc., were impressed by the work Chris had done on financial planning. Using Chris’s analysis, and looking at the demand for light aircraft, they have decided that their existing fabrication equipment is sufficient, but it is time to acquire a bigger manufacturing facility. Mark and Todd have identified a suitable structure that is currently for sale, and they believe they can buy and refurbish it for about $35 million. Mark, Todd, and Chris are now ready to meet with Christie Vaughan, the loan officer for First United National 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 installments. Because of the previous relationship between S&S Air and the bank, there would be no closing costs for the loan. Christie states that the APR of the loan would be 6.1 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 refinancing his home loan. A smart loan works as follows: Every two weeks a mortgage payment is made that is exactly one-half of the traditional monthly mortgage payment. Christie informs him that the bank does have smart loans. The APR of the smart loan would be the same as the APR of the traditional loan. Mark nods his head. He then states this is the 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 greatest interest savings. At Todd’s prompting, she goes on to explain a bullet loan. The monthly payments of a bullet loan would be calculated using a 30-year traditional mortgage. In this case, there would be a 5-year bullet. This would mean that the company would make the mortgage payments for the traditional 30-year mortgage for the first five years, but immediately after the company makes the 60th payment, the bullet payment would be due. The bullet payment is the remaining principal of the loan. Chris then asks how the bullet payment is calculated. Christie tells him that the remaining principal can be calculated using an amortization table, but it is also the present value of the remaining 25 years 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. Christie says that the bank offers an interest-only loan with a term of 10 years and an APR of 3.5 percent. She goes on to further explain the terms. The company would be responsible for making interest payments each month on the amount borrowed. No principal payments are required. At the end of the 10-year term, the company would repay the $35 million. However, the company can make principal payments at any time. The principal payments would work just like those on a traditional mortgage. Principal payments would reduce the principal of the loan and reduce the interest due on the next payment.Mark and Todd are satisfied with Christie’s 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.QUESTIONS1. What are the monthly payments for a 30-year traditional mortgage? What are the payments for a 20-year traditional 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?CASE 6Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company’s geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company’s financial officer. Alma has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine.Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $650 million today, and it will have a cash outflow of $72 million nine years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the table on this page. Bullock Mining has a 12 percent required return on all of its gold mines.YearCash Flow0?$650,000,000180,000,0002121,000,0003162,000,0004221,000,0005210,000,0006154,000,0007108,000,000886,000,0009?72,000,000QUESTIONS1.Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, and net present value of the proposed mine.2.Based on your analysis, should the company open the mine?3.Bonus question: Most spreadsheets do not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback period for a project.1 We could, of course, calculate the average of the six book values directly. In thousands, we would have ($500 + 400 + 300 + 200 + 100 + 0)/6 = $250.2 The AAR is closely related to the return on assets, or ROA, discussed in Chapter 3. In practice, the AAR is sometimes computed by first calculating the ROA for each year and then averaging the results. This produces a number that is similar, but not identical, to the one we computed.CASE 2CaseCase I is due at the end of this week. Prepare a memo in Word, which answers the questions in the Chapter 2 Case, Cash Flows and Financial Statements at Sunset Boards, Inc., on page 51 of the textbook. Use Excel to solve any financial calculations. You will be graded on correct financial analysis, proper use of technology, business-like presentation of technology, and business-like presentation. Questions: 2. In light of your discussion in the previous question, what do you think about Tad's expansion plans. 1. How would you describe Sunset Boards' cash flows for 2014? Write a brief discussion. Rating: 4.9/5
Solution: DEVRY BUSN379 ALL WEEKS CASES [ TOTAL 3 CASES ]