Given PGI = 150,000, Vacancy Rate = 5%, and Other Income = 10,000, what is EGI?

Given PGI = 150,000, Vacancy Rate = 5%, and Other Income = 10,000, what is EGI?

• A. 142,500
• B. 152,500
• C. 150,000
• D. 157,500

Answer: (B)

Effective Gross Income is what you actually collect after accounting for vacancies and adding other income. Start with Potential Gross Income, subtract the vacancy loss, and then add other income. Vacancy loss equals PGI times the vacancy rate: 150,000 × 0.05 = 7,500. So after vacancies you have 150,000 − 7,500 = 142,500. Then add other income: 142,500 + 10,000 = 152,500. Alternatively, EGI = PGI × (1 − vacancy rate) + Other Income = 150,000 × 0.95 + 10,000 = 142,500 + 10,000 = 152,500. Therefore, the Effective Gross Income is 152,500.

Effective Gross Income is what you actually collect after accounting for vacancies and adding other income. Start with Potential Gross Income, subtract the vacancy loss, and then add other income.

Vacancy loss equals PGI times the vacancy rate: 150,000 × 0.05 = 7,500. So after vacancies you have 150,000 − 7,500 = 142,500. Then add other income: 142,500 + 10,000 = 152,500.

Alternatively, EGI = PGI × (1 − vacancy rate) + Other Income = 150,000 × 0.95 + 10,000 = 142,500 + 10,000 = 152,500.

Therefore, the Effective Gross Income is 152,500.