5. Ch13 Financial Planning Exercise 13 Chapter 13 Financial Planning Exercise 13 Investing in residential income-producing property Mallory Comer is thinking about investing in some residential income-producing property that she can purchase for $280,000. Mallory can either pay cash for the full amount of the property or put up $110,000 of her own money and borrow the remaining $170,000 at 7% interest. The property is expected to generate $40,000 per year after all expenses but before interest and income taxes. Assume that Mallory is in the 25% tax bracket. (Hint: Earnings before interest & taxes minus Interest expenses (if any) equals Earnings before taxes minus Income taxes (@25%) equals Profit after taxes.) a. Calculate her annual profit and return on investment assuming that she pays the full $280,000 from her own funds. Do not round intermediate calculations. Round the profit to the nearest whole dollar and ROI to two decimal places. Annual profit $ Return on Investment % b. Calculate her annual profit and return on investment assuming that she borrows $170,000 at 7 percent. Do not round intermediate calculations. Round the profit to the nearest whole dollar and ROI to two decimal places. Annual profit $ Return on Investment % c. What was the effect of using leverage on Mallory's rate of return? decrease in return on investment