A firm's annual revenue grows twice as fast as its costs. In 2007 it operated at a $1000 loss, it broke even in 2008, and in 2009 its revenues were 44% higher than in 2007. If the firm's revenues and costs grew at a constant rate over this period, what was its profit in 2009?
A $700
B $1000
C $1300
D $1600
E $2000
The answer is an approximation, so if you don't get the exact answer don't be alarmed. I shall post the answer after a few responses
Thanks
percentages
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- tpr-becky
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Where is this problem from? The approximation is a bit too wide for the question and a real GMAT question would clearly state the answer was an approximation. however here is how I would solve it:
First is to figure out that if the revenue increases 44% over two years that the yearly increas is 20% (20% of 120% is 144%) Which means that costs increase by 10% each year. we have the profit (R - C) for each of the first two years. I found it helpful to create a chart
R7 1.2R7 1.44R7
C7 1.1C7 1.21C7
-1000 0 ???
Now it is just about doing the algebra:
you know that 1.2R7 = 1.1C7 and that R7 - C7 = -1000
You can rewrite R7 = C7 - 1000 which means that 1.2(C7 - 1000) = 1.1C7 which simplifies to
1.2C7 - 1200 = 1.1C7
.1C7 = 1200
C7 = 12000
which means R7 = 11000.
Now you have to put that into the final column:
1.44(11000) - 1.21 (12000) = ?
15840 - 14520 = 1320
so the closest answer is 1300
First is to figure out that if the revenue increases 44% over two years that the yearly increas is 20% (20% of 120% is 144%) Which means that costs increase by 10% each year. we have the profit (R - C) for each of the first two years. I found it helpful to create a chart
R7 1.2R7 1.44R7
C7 1.1C7 1.21C7
-1000 0 ???
Now it is just about doing the algebra:
you know that 1.2R7 = 1.1C7 and that R7 - C7 = -1000
You can rewrite R7 = C7 - 1000 which means that 1.2(C7 - 1000) = 1.1C7 which simplifies to
1.2C7 - 1200 = 1.1C7
.1C7 = 1200
C7 = 12000
which means R7 = 11000.
Now you have to put that into the final column:
1.44(11000) - 1.21 (12000) = ?
15840 - 14520 = 1320
so the closest answer is 1300
Becky
Master GMAT Instructor
The Princeton Review
Irvine, CA
Master GMAT Instructor
The Princeton Review
Irvine, CA