Question : Vinay sells an article at a profit of 20%. If both the cost price and selling price are reduced by Rs. 20, then the profit becomes 40%. What is the initial cost price?
Option 1: Rs. 80
Option 2: Rs. 60
Option 3: Rs. 50
Option 4: Rs. 40
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Correct Answer: Rs. 40
Solution :
Let the initial cost price = $100x$
A profit of 20% means the selling price = $120x$
As both were reduced by Rs. 20.
New cost price = $100x - 20$
New selling price = $120x - 20$
Profit = $(120x - 20 - 100x + 20)$
Now the new profit is 40%.
So,
$\frac{(120x - 20 - 100x + 20)}{(100x - 20)}\times 100 = 40$
⇒ $\frac{20x}{(100x - 20)} = \frac{2}{5}$
⇒ $100x = 200x - 40$
⇒ $100x = 40$
Since the initial cost price is $100x$ and the value of $100x = 40$
Hence, the correct answer is Rs. 40.
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