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# Each year, Company X’s local tax burden is computed by charging a set

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Manager
Status: Victory is never a one time thing.
Joined: 14 Jan 2018
Posts: 57
Location: Oman
Concentration: Finance, Marketing
GMAT 1: 590 Q49 V21
GMAT 2: 650 Q47 V33
GPA: 3.8
Each year, Company X’s local tax burden is computed by charging a set  [#permalink]

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16 Dec 2018, 07:57
5
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Difficulty:

35% (medium)

Question Stats:

63% (01:19) correct 37% (01:11) wrong based on 143 sessions

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Each year, Company X’s local tax burden is computed by charging a set amount of \$200 plus an additional 8 percent on all profit made over \$10,000. What is the company’s local tax burden this year?

(1) Company X made a profit of \$60,000 this year.

(2) Company X’s local tax burden is equal to 7 percent of its profit this year.
Manager
Joined: 24 Jun 2013
Posts: 145
Location: India
Schools: ISB '20, GMBA '20
Re: Each year, Company X’s local tax burden is computed by charging a set  [#permalink]

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16 Dec 2018, 08:29
3
1
cristianosubo wrote:
Each year, Company X’s local tax burden is computed by charging a set amount of \$200 plus an additional 8 percent on all profit made over \$10,000. What is the company’s local tax burden this year?

(1) Company X made a profit of \$60,000 this year.

(2) Company X’s local tax burden is equal to 7 percent of its profit this year.

Given : Tax = \$200 + 0.08(Profit - 10000)
1) Profit = 60000; we can directly key in and cal tax , which comes out to be 4200\$ suff (No need to calculate )
2) Tax = 0.07 Profit, put this is given equation

0.07P = 200 + 0.08(P -10000) ; P = 60000\$ , from This P we can calculate tax as in stat 1) suff

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Joined: 22 Dec 2017
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Schools: Booth '21
GMAT 1: 730 Q49 V39
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Re: Each year, Company X’s local tax burden is computed by charging a set  [#permalink]

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19 Dec 2018, 06:05
1
Here, in the answer are we are assuming that the profit is always greater than \$10,000?
Because, if profit is less than 10000 then the tax burden would come out to be \$200.
Thus, we would have 2 solutions using only option (2).

Solutions:

1. If profit>10,000
0.07P = 200 + 0.08(P -10000)
P = \$60,000
Tax burden = \$4200

2.. If profit<10,000
Tax burden = 0.07P=200
Tax burden = \$200

Thus, we have 2 solutions and hence (2) alone is not sufficient
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Joined: 12 Feb 2015
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Each year, Company X’s local tax burden is computed by charging a set  [#permalink]

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20 Dec 2018, 09:39
Shamita wrote:
Here, in the answer are we are assuming that the profit is always greater than \$10,000?
Because, if profit is less than 10000 then the tax burden would come out to be \$200.
Thus, we would have 2 solutions using only option (2).

I feel the OA is correct. If the profit is less than \$10,000, say \$5000, then the tax burden will come out to be \$200 ---> you are right up till this point. Statement 2 says that tax burden is 7%. BUT \$200 is NOT 7% of \$5000!!

I hope you get the point I am making here. There is only one unique solution when the effective tax rate is 7%!! No value less than 10000 will satisfy this condition or in simple words only one value of profits will satisfy this condition, that is when the profit is \$60,000/-
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Each year, Company X’s local tax burden is computed by charging a set   [#permalink] 20 Dec 2018, 09:39
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