Mark 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 lightaircraft, they have decided that their existing fabricationequipment is sufficient, but it is time to acquire a biggermanufacturing facility. Mark and Todd have identified a suitablestructure that is currently for sale, and they believe they can buyand refurbish it for about $40 million. Mark, Todd, and Chris arenow ready to meet with Christie Vaughan, the loan officer for FirstUnited National Bank. The meeting is to discuss the mortgageoptions available to the company to finance the new facility.Christie begins the meeting by discussing a 30-year mortgage. Theloan would be repaid in equal monthly installments. Because of theprevious relationship between S&S Air and the bank, there wouldbe no closing costs for the loan. Christie states that the APR ofthe loan would be 8 percent. Todd asks if a shorter mortgage loanis available. Christie says that the bank does have a 20-yearmortgage available at the same APR. Mark decides to ask Christieabout a “smart loan” he discussed with a mortgage broker when hewas refinancing his home loan. A smart loan works as follows: Everytwo weeks a mortgage payment is made that is exactly one-half ofthe traditional monthly mortgage payment. Christie informs him thatthe bank does have smart loans. The APR of the smart loan would bethe same as the APR of the traditional loan. Mark nods his head. Hethen states this is the best mortgage option available to thecompany because it saves interest payments. Christie agrees withMark, 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 abullet loan would be calculated using a 30-year traditionalmortgage. In this case, there would be a 5-year bullet. This meansthat the company would make the mortgage payments for thetraditional 30-year mortgage for the first five years, butimmediately after the company makes the 60th payment, the bulletpayment would be due. The bullet payment is the remaining principalof the loan. Chris then asks how the bullet payment is calculated.Christie tells him that the remaining principal can be calculatedusing an amortization table, but it is also the present value ofthe remaining 25 years of mortgage payments for the 30-yearmortgage.

Mark and Todd are satisfied with Christie's answers, but theyare still unsure of which loan they should choose. They have askedChris to answer the following questions to help them choose thecorrect mortgage.

What are the monthly payments for a 30-year traditionalmortgage? What are the payments for a 20-year traditionalmortgage?