Investing in residental income-producing property
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 6 percent interest. The property is expected to generate $35,000 per year after all expenses but before interest and income taxes. Assume that Mallory is in the 28 percent tax bracket. (Hint: Earnings before interest & taxes minus Interest expenses (if any) equals Earnings before taxes minus Income taxes (@28%) 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 $
Return on investment %
b) Calculate her annual profit and return on investment assuming that she borrows $90,000 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 %