Financial Planning Exercise 13 Investing in residential income producing property Kimberly Bishop is thinking about investing in some residential income producing property that she can purchase for $160,000 Kimberly can either pay cash for the full amount of the property or put up $50,000 of her own money and borrow the remaining $110,000 at 5 percent interest The property is expected to generate $20,000 per year after all expenses but before interest and income taxes Assume that Kimberly is in the 32 percent tax bracket ( Hint Earnings before interest taxes minus Interest expenses (if any) equals Earnings before taxes minus Income taxes ( 32 ) equals Profit after taxes ) Calculate her annual profit and return on investment assuming that she pays the full $160,000 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 Calculate her annual profit and return on investment assuming that she borrows $110,000 at 5 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 What was the effect of using leverage on Kimberly's rate of return increase in return on investment or decrease in return on investment

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Financial Planning Exercise 13 Investing in residential income-producing property Kimberly Bishop is thinking about investing in some residential income-producing property that she can purchase for

Financial Planning Exercise 13 Investing in residential income-producing property

Kimberly Bishop is thinking about investing in some residential income-producing property that she can purchase for $160,000. Kimberly can either pay cash for the full amount of the property or put up $50,000 of her own money and borrow the remaining $110,000 at 5 percent interest. The property is expected to generate $20,000 per year after all expenses but before interest and income taxes. Assume that Kimberly is in the 32 percent tax bracket. (Hint: Earnings before interest & taxes minus Interest expenses (if any) equals Earnings before taxes minus Income taxes (@32%) equals Profit after taxes.)

Calculate her annual profit and return on investment assuming that she pays the full $160,000 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 %
Calculate her annual profit and return on investment assuming that she borrows $110,000 at 5 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 %
What was the effect of using leverage on Kimberly's rate of return?

-increase in return on investment or decrease in return on investment