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Given the following information, calculate the effective gross income multiplier: sale price: $950,000; potential gross income: $250,000; vacancy and collection losses: 15%; and miscellaneous income: $50,000.

A. 0.36
B. 0.30
C. 2.8
D. 3.6

1 Answer

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Answer:

D. 3.6

Step-by-step explanation:

The effective gross income multiplier (EGIM) is the ratio between the sale price (SP) and the effective growth income (EGI)


EGIM = (SP)/(EGI)

Sales Price (SP) = $950,000

Potential gross income (PI) = $250,000

Vacancy and collection losses (VC)= 15% = 0.15 * $250,000 = $37,500

Miscellaneous income (M) = $50,000.

The effective growth income is given by:


EGI = PI +M - VC = \$250,000 +\$50,000 - \$37,500\\EGI = \$262,500

Thus, the effective gross income multiplier is:


EGIM = (\$950,000)/(\$262,500) \\EGIM = 3.6

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