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Financial Planning Exercise 13 Investing in residential income-producing property Kimberly Bishop is thinking about investing in some residential income-producing property that she can purchase for $270,000. Kimberly can either pay cash for the full amount of the property or put up $90,000 of her own money and borrow the remaining $180,000 at 7 percent interest. The property is expected to generate $45,000 per year after all expenses but before interest and income taxes. Assume that Kimberly is in the 35 percent 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 $270,000 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 $180,000 at 7 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? -Select

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