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A Firm's Financial Data

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A Firm's Financial Data

by gmatdriller » Tue Nov 15, 2011 10:19 am
A firm's financial data for 2004-2006 is given in the chart below (all figures in 1000s of $).
If the firm's average annual profits over the period 2004-2012 are $300,000, and its
average costs and revenues change by an equal percentage between the two periods, what
is the ratio of its revenue in 2004-2006 to its revenue for the years 2007-2012?


YR 2004 2005 2006

COST: 400 900 500

REVENUE: 300 700 1100

(A)1/6 (B)2/9 (C)1/4 (D)2/5 (E)1/2

Please what is the shortcut to this question considering the 2-minute constraint...
C
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Last edited by gmatdriller on Tue Nov 15, 2011 11:08 am, edited 1 time in total.
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by shankar.ashwin » Tue Nov 15, 2011 10:47 am
I am really not sure of the wordings in this one, kind of used the answer to arrive at the solution.

In years (2004-2006) - 3 years

Total Cost = 1800
Total Revenue = 2100

Profit = 2100-1800 = 300 for 3 years (or) 100 per year.

Now we are given that cost,revenue and profit increase by an equal % (say by a factor 'a' )

Now we are given profit for the period (2004-2012) - 9 years.

we know profit for first 3 years = 300 and let the remaining 6 years be 100*a (a - increase in profit)

[3* (100) + 6*a* (100) ] / 9 = 300 (given profit = $300,000)

a = 4. So profits become 4 times that of (2004-2006) Ratio would be 1/4 C
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by GMATGuruNY » Tue Nov 15, 2011 10:56 am
gmatdriller wrote:A firm's financial data for 2004-2006 is given in the chart below (all figures in 1000s of $).
If the firm's average annual profits over the period 2004-2012 are $300,000, and its
average costs and revenues change by an equal percentage between the two periods, what
is the ratio of its revenue in 2004-2006 to its revenue for the years 2007-2012?


YR 2004 2005 2006

COST: 400 900 500

REVENUE: 300 700 1100

(A)1/6 (B)2/9 (C)1/4 (D)2/5 (E)1/2
Revenues and costs changed by the SAME PERCENTAGE over the two periods in question.
This means that PROFITS changed by the same percentage as revenues and costs.
To illustrate:
Double the revenue - double the cost = double the profit.
Thus, to determine the revenue ratio, we need to calculate the PROFIT RATIO.

2004-2006:
Total revenue = 300+700+1100 = 2100.
Total costs = 400+900+500 = 1800.
Total profit = revenue - costs = 2100-1800 = 300.
Average annual profit = 300/3 = 100.

2004-2012:
Total profit = (number of years)(average annual profit) = 9*300 = 2700.

2007-2012:
Total profit = (Profit for 2004-2012) - (Profit for 2004-2006) - 2700-300 = 2400.
Average annual profit = 2400/6 = 400.

(Average annual profit for 2004-2006):(Average annual profit for 2007-2012) = 100:400 = 1:4.

The correct answer is C.
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