Jennifer Davis is a single lawyer, age 30. Her income is substantially more than her expenses, and she wants to begin an investment plan. Although she has considered investing in stocks, she doesnt feel that she has the expertise or time to make well-informed decisions. She has a 401(k) plan with her employer in which she has accumulated $50,000 in a diversified stock mutual fund. She thinks shed like to leverage her knowledge of the legal aspects of real estate by using her savings to invest in some rental property. Jennifer is considering the purchase of a small house that has two rental units and is located near the local university campus. She estimates that shell need to invest about $10,000for new carpet, paint, and a few repairs before she can rent the apartments. Her rental income will be $17,000 per year. The purchase price of the property is $149,000. She has $43,000 to cover the $2,000 closing costs, remodeling costs, and a 18 percent down payment. Shell finance the rest with a 7 percent mortgage. Interest on the mortgage for the first year will total $6,950.

(b) Assuming Jennifer incurs $2,800 in expenses per year, calculate her pretax net cash flow for the first year, after financing costs.

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