Question

SmartShop's profits have been growing at 5% per year. This year their profits were approximately $500,000. What were their profits last year?

$475,000
$490,000
$460,000

Answer 1

Their profits last year were $475,000

Answer 2

$475,000

Explanation:

Since the profits increase by 5% each year, this means that each year the new profit is 105% of the old ones.

To find last year's profits, we divide this year's by 105%, or 1.05:

500000/1.05 = 476190.48

This means the profits last year were about $475,000.