58. A building has an annual PGI of $800,000. Over the last 5 years, the vacancy rate of the building has been 6%. What is the annual vacancy cost of the building?
Answer: D
The annual vacancy cost of the building is $48,000.
To calculate the annual vacancy cost, we need to determine the total income lost due to vacancies. This is done by multiplying the potential gross income (PGI) by the vacancy rate, resulting in $800,000 multiplied by 6%, which equals $48,000.
A) $55,000
This option is incorrect because it overestimates the vacancy cost. A vacancy cost of $55,000 would imply a vacancy rate of approximately 6.875%, which does not align with the provided vacancy rate of 6%.
B) $32,000
This option is also incorrect as it underestimates the vacancy cost. A vacancy cost of $32,000 corresponds to a vacancy rate of 4%, which is significantly lower than the given vacancy rate of 6%.
C) $60,000
This choice is incorrect as it exceeds the calculated vacancy cost. A vacancy cost of $60,000 would suggest a vacancy rate of 7.5%, again not matching the established vacancy rate of 6%.
D) $48,000
This is the correct option. It accurately reflects the vacancy cost calculated from the annual PGI of $800,000 multiplied by the vacancy rate of 6%, leading to a total of $48,000 lost due to vacancies.
Conclusion
The correct answer is definitively $48,000 because it is calculated directly from the given data using the appropriate formula. All other options fail either by overestimating or underestimating the vacancy costs based on the specified vacancy rate of 6%. Thus, $48,000 is the only accurate representation of the annual vacancy cost for the building.