Scott Woodbury-Stewart

GMAT OFFICIAL GUIDE PS – A pharmaceutical company received $3 million in royalties…

A pharmaceutical company received $3 million in royalties…

Solution:

This is a percent decrease problem. We will use the formula: percent change = (new – old)/old x 100 to calculate the final answer.

We first set up the ratios of royalties to sales. The first ratio will be for the first 20 million in sales, and the second ratio will be for the next 108 million in sales. Because all of the sales are in millions, we do not have to express all the trailing zeros in our ratios.

First 20 Million

royalties/sales = 3/20

Next 108 Million

royalties/sales = 9/108 = 1/12

Because each ratio is not an easy number to use, we can simplify each one by multiplying each by the LCM of the two denominators, which is 60. Keep in mind that we are able to do this only because our answer choices are expressed in percents.

First 20 Million

royalties/sales = (3/20) x 60 = 9

Next 108 Million

royalties/sales = 9/108 = (1/12) x 60 = 5

We can plug 9 and 5 into our percent change formula:

(new – old)/old x 100

[(5 – 9)/9] x 100

-4/9 x 100

At this point we can stop and consider the answer choices. Since we know that 4/9 is just a bit less than ½, we know that -4/9 x 100 is about a 45% decrease.

Answer: C