Last year, Matthew bought two cars. This year, he sold both the cars for $45,000 each. On one, he earned 20% profit, and on the other, he made a 20% loss. What was his net profit or loss?

The options are **A**. Profit of $7,500, **B**. Loss of $3,750, **C**. Profit of $3,750 and **D**. Loss of $7,500. Can you attempt this question? Solve and compare your answer to the solution below.

## SOLUTION TO THE QUESTION

In business and accounting, net income is a measure of the profitability of a venture. It is an entity’s income minus the cost of goods sold, expenses, depreciation and amortization, interest, and taxes for an accounting period.

*Now, Let the first car be called Car 1 and the second Car be called Car 2.*

**Analyzing Car 1 (20% profit)**

We don’t know the cost of car 1. so, let it be x

20% profit is ^{20}„_{100 times} x

ˆ´ x + ^{20}„_{100} x = $45,000

finding the lcm and cross multiplying

100x + 20x = $45,000 x 100

120x = $4500000

x = ^{4500000}„_{120 }= $37,500

Therefore, cost price for Car 1 =** $37,500**

**Analyzing Car 2 (20% loss)**

We don’t know the cost of car 2. so, let it be x

20% profit is ^{20}„_{100 times} x

ˆ´ x – ^{20}„_{100} x = $45,000

finding the lcm and cross multiplying

100x – 20x = $45,000 x 100

80x = $4500000

x = ^{4500000}„8_{0 }= $56,250

Therefore, cost price for Car 2 = **$56,250**

Profit/Loss= Selling Price -Cost Price

Tota Selling Price = $45000 + $45000 =**$90,000**

Total Cost Price = $37,500 + $56,250** = $93,750**

Profit/Loss= **$90,000 – $93,750 = $-3,750. ***THE ANSWER IS OPTION B*

**The cost price is higher than selling price, therefore, there is a loss of $3,750**

**Car 1 Profit**: Selling price – cost price = $45,000 – $37,500 = $7,500

**Car 2 Loss: **Selling price – cost price = $45,000 – $56,250 = $11,250

Hope yo understand?

Shadrach Anekwe says

Thanks for your ready answer. I cannot thank you enough.