1. Feed Me, a local not-for-profit food bank, needs to expand their operations. A wealthy individual donated a two-acre piece of land to Feed Me to enable them to construct an additional facility. They have worked with a local architect and general contractor to design this new facility. The cost to construct this new facility is $800,000. The local Bank A is willing to give them a mortgage for $700,000 if Feed Me gives the bank a $100,000 down payment, which they have in their endowment fund.
a. What will the monthly mortgage payments be if this mortgage is for 30 years at an interest rate of 4.5%?
b. What is the total amount of interest for the life of the loan?
c. Feed Me received another loan offer from Bank B at the rate of 5% with $100,000 down payment.
a. How much interest will Feed Me save by taking the offer for the 4.5% mortgage loan from Bank A?
2. It is a year later and Feed Me has successfully completed their new building and their food bank is very busy serving the community. Since they are so busy, they decide they will need to purchase 3 Ford panel trucks at $45,000 each to be used to pick up donated food from the local restaurants and grocery stores. Bank A is willing to lend them the entire cost of these three trucks.
a. What will the monthly payments be if the loan is for 7 years at an interest rate of 4.95%?
3. Feed Me will need to hire a new executive director since the current one will be retiring in six months. The Board of Directors of Feed Me has decided that to make the executive director position more attractive, they will purchase a $43,000 Honda Pilot that will be used by the new executive director. The local Honda dealership is offering Feed Me two options on a car loan. Option 1 is for 4 years at 3.85%. Option 2 is for 4 years at an interest rate of 1% but Feed Me will have to promise, in writing, that they will only bring this vehicle to this dealer for service over the 3-year period of the loan.
a. What will the monthly payments be if option 1 is chosen?
b. What will the monthly payments be if option 2 is chosen?
c. How much total interest will be saved if Feed Me picks option 2?
4. I Love Kids is a local not-for-profit that provides day care Monday through Friday for children from 6 months old up to 5 years old. They need to replace their very old playground equipment. The new equipment will cost $250,000, including installation. The manufacturer of the equipment offers no money down financing for 8 years at an interest rate of 7.75%. Bank C is willing to also give I Love Kids a loan for the entire $250,000 at a term of 5 years and an interest rate of 6.5%.
a. Calculate the monthly payments and total amount of the interest for the life of the loan for:
i. The 8 year and 7.75% loan and
ii. The 5 year and 6.5% loan.
iii. Compare the total interest cost between the two loan options.
5. A local not-for-profit high school, Smart Kid’s High School, is going to upgrade their existing computer lab at a cost of $375,000. Bank P is willing to donate $75,000 toward this project and give them a 15-year loan at an interest rate of 5.5%. If they did not have the $75,000 donation and had to borrow the entire $375,000 using a 15-year loan at 5.5%, how much more would the total interest expense be for this loan compared to the $300,000 loan?