Leah Reyes is thinking about investing in residential income-producing property that she can purchase for $170,000. Leah can either pay cash for the full amount of the property or put up $40,000 of her own money and borrow the remaining $130,000 at 8 percent interest. The property is expected to generate $25,000 per year after all expenses but before interest and income taxes. Assume that Leah is in the 33 percent tax bracket. (Hint: Earnings before interest & taxes minus Interest expenses (if any) equals Earnings before taxes minus Income taxes (@33%) equals Profit after taxes.)

a. Calculate her annual profit and return on investment assuming that she pays the full $170,000 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 $

b.Calculate her annual profit and return on investment assuming that she borrows $130,000 at 8 percent. Do not round intermediate calculations. Round the profit to the nearest whole dollar and ROI to two decimal places. Annual profit $

c. What was the effect of using leverage on Leah's rate of return?

increase in return of investment/ decrease in return of investment