6. The tax effect of interest payments on loans to make real estate investments Aa Aa Alex invested in residential real estate for $250,000 ($212,500 for the building and $37,500 for the land). He financed his purchase with a 20-year mortgage for $125,000 at an interest rate of 5%. A year has passed since his purchase. Alex is now curious about how his taxes, cash flow, after-tax return, and after-tax yield would have been different if he had paid cash for the property. Alex's files indicate the following information regarding his investment: Rental revenues were $37,500 The depreciation deduction was $7,727 Alex paid $6,165 interest on the mortgage Alex is in a 25% tax bracket Complete the following table. Assume that all factors except those described above remain constant. For the after-tax yields, round your answers to the nearest decimal and round all other answers to the nearest whole number. Enter all figures as positive numbers, and follow the guidance in the tables to perform the appropriate mathematical operations. Used Paid cash leverage Gross rental income $37,500 $37,500 Less: Annual depreciation deduction Subtotal Less: Interest expense for the year Taxable income Cash flow after paying interest Less: Income tax liability After-tax return After-tax yield his overall rate of return, compared to Because Alex took out a mortgage to finance his investment, he was able to strategy making the investment solely with cash. In the first year of ownership, it appears to have been a