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Lilia Castillo is thinking about investing in some residential income-producing property that she can purchase for $300,000. Lilia can either pay cash for the full
Lilia Castillo is thinking about investing in some residential income-producing property that she can purchase for $300,000. Lilia can either pay cash for the full amount of the property or put up $140,000 of her own money and borrow the remaining $160,000 at 6% interest. The property is expected to generate $35,000 per year after all expenses but before interest and income taxes. Assume that Lilia is in the 35% tax bracket. (Hint: Earnings before interest & taxes minus interest expenses (if any) equals Earnings before taxes minus income taxes (@35%) equals Profit after taxes.) a. Calculate her annual profit and return on investment assuming that she pays the full $300,000 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 $160,000 at 6 percent. Do not round intermediate calculations. Round the profit to the nearest whole dollar and ROI to two decimal places. Annual profit$ Return on Investment
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