Marianne Mooney, benefits manager and her sister, Laureen, a middle-school teacher from Pompano Beach, Florida, are interested in the numbers of real estate investments. They have reviewed the figures in Table 16-2 on page 499 and are impressed with investing together on a 50/50 basis to earn the potential 50.12 percent return after taxes. Assume that they bought the property with each contributed half of the down payment and they financed it with a 7 percent $175,000 30-year mortgage loan with annual interest costs of $11,900. Answer the following questions to help guide their investment decisions:
(a) Substitute the Maureen's 25 percent marginal tax bracket (Florida has no state income tax) in Table 16-2, and calculate her taxable income and return after taxes.
(b) Substitute Laureen's 15 percent tax rate (no state income tax) in Table 16-2, and calculate her taxable income and return after taxes.
(c) Why does real estate appear to be a favorable investment for Marianne and Laureen?
(d) What one factor might be changed in Table 16-2 to increase their returns?