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In the part (b) of the question for calculating percentage change in selling price, in the answer in the book they have take revenue of each year and multiplied it with 0.75.
Where did we get the figure of 0.75 and why did we multiply it with 0.75?
It is to account for the tax of 25%.
Every $1 change in the revenue will result in a $1 change in the profit, and therefore a $0.25 change in tax. So a $1 x 0.75 change in the after-tax profit.
Thank you so much! I had spent more than an hour trying to understand the calculation!
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