Question: Mallory Corner is thinking about investing in some residential income-producing property that she can purchase for $170,000. Mallory can either pay cash for the full amount of the property or put up $80,000 of her own money and borrow the remaining $90,000 at 8 percent interest. The property is expected to generate $20,000 per year after all expenses but before interest and income taxes. Assume that Mallory is in the 25 percent tax bracket. (Hint: Earnings before interest & taxes minus Interest expenses (if any) equals Earnings before taxes minus Income taxes (@25%) equals Profit after taxes.)
1. 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 $ Return on Investment %
2. Calculate her annual profit and return on investment assuming that she borrows $90,000 at 8 percent. Do not round intermediate calculations. Round the profit to the nearest whole dollar and ROI to two decimal places. Annual profit $ Return on Investment %