Question

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

Answer 1

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`