Kimberly Bishop is thinking about investing in some residential income-producing property that she can purchase for $100,000. Kimberly can either pay cash for the full amount of the property or put up $40,000 of her own money and borrow the remaining $60,000 at 9 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 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.)

a. Calculate her annual profit and return on investment assuming that she pays the full $100,000 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 $60,000 at 9 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 Kimberly's rate of return?

increase in return on investment or decrease in return on investment.