The gross potential rental income of Manderley Complex is $3,000,000. Its vacancy cost is $100,000. Its other income is $55,000. What is Manderley Complex's effective gross income?

Rationale

Manderley Complex's effective gross income is $2,955,000.

To calculate the effective gross income (EGI), we subtract the vacancy cost from the gross potential rental income and then add any other income. In this case, the calculation is $3,000,000 (gross income) - $100,000 (vacancy cost) + $55,000 (other income), resulting in an EGI of $2,955,000.

A ($2,955,000) CORRECT

This choice correctly accounts for the gross potential rental income, vacancy cost, and other income. The calculation confirms that $3,000,000 - $100,000 + $55,000 equals $2,955,000, making this the right answer.

B ($3,155,000) YOUR ANSWER

This option incorrectly adds the vacancy cost instead of subtracting it. The gross potential rental income plus other income should be adjusted for vacancy costs to find the effective gross income. Thus, $3,155,000 does not accurately represent the EGI calculation.

C ($3,055,000) YOUR ANSWER

This choice reflects a miscalculation where the vacancy cost is subtracted from the gross potential income, but without the addition of other income. The effective gross income must consider all aspects, and this choice overlooks the $55,000 from other income, leading to an incorrect total.

D ($2,845,000) YOUR ANSWER

This option represents a further incorrect calculation, where both the vacancy cost is improperly accounted for, and there is an erroneous deduction that does not include the other income. The result is a lower figure that does not reflect the correct calculation for effective gross income.

Conclusion

Effective gross income is a crucial metric that reflects the actual income a property generates after accounting for vacancy costs and incorporating additional income sources. In the case of Manderley Complex, the accurate calculation yields an effective gross income of $2,955,000, highlighting the importance of correctly applying both deductions and additions in financial assessments. Understanding EGI is vital for evaluating the financial performance of real estate investments.

The gross potential rental income of Manderley Complex is $3,000,000. Its vacancy cost is $100,000. Its other income is $55,000. What is Manderley Complex's effective gross income?

Manderley Complex's effective gross income is $2,955,000.

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