The use of financial leverage in purchasing an income-produc…
The use of financial leverage in purchasing an income-producing property can affect the amount of cash required at acquisition, net cash flows, net cash flows from the eventual sale of the property, and the ultimate return on invested equity. Assuming the going-in IRR is greater than the effective borrowing cost, if an investor increases his leverage rate, from 75% to 80%, we would expect which of the following to occur?