A commercial building is being analyzed for purchase with the following data: Annual rental income $240,000, vacancy rate 8%, operating expenses $45,000, debt service $85,000. What is the property's Net Operating Income (NOI)?

Option B: $110,000

This answer incorrectly subtracts both operating expenses and debt service from effective gross income ($220,800 - $45,000 - $85,000 = $90,800), then appears to add something back. NOI calculations specifically exclude debt service as it represents financing costs rather than operating performance. This fundamental error would lead to incorrect property valuations and investment analysis.

Option C: $195,000

This answer uses gross rental income ($240,000) minus operating expenses ($45,000) without accounting for the vacancy rate. The calculation ignores that effective gross income must be reduced by 8% vacancy, resulting in an inflated NOI. This error overestimates the property's actual operating performance and would lead to incorrect investment decisions.

Option D: $135,800

This calculation appears to subtract debt service from the correct NOI figure ($175,800 - $40,000 = $135,800), which is incorrect. Debt service is a financing cost that should never be included in NOI calculations. NOI measures operating performance independent of how the property is financed, making this approach fundamentally flawed for commercial real estate analysis.