Kimberly Bishop is thinking about investing in some residential income-producing property that she can purchase for $130,000. 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 $80,000 at 5 percent interest. The property is expected to generate $10,000 per year after all expenses but before interest and income taxes. Assume that Kimberly is in the 35 percent tax bracket. (Hint: Earnings before interest & taxes minus Interest expenses (if any) equals Earnings before taxes minus Income taxes (@35%) equals Profit after taxes.)

Calculate her annual profit and return on investment assuming that she pays the full $130,000 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 $80,000 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?