Year Net profit Index 1996 45380 1363 2006 65035 1502 14 The

Year Net profit Index 1996 $45,380 136.3 2006 65,035 150.2 14. The table reports the net profit for Heban Tool and Die, Inc. for the years 1996 and 2006. Also reported is the tool and die index for the same years (1985 = 100). a. What was the percent increase in the index from 1996 to 2006? b.Convert the index to a 1996 base.What is the new index for 2006? c. Determine the net profit for 2006 in terms of the 1996 base. Comment on the change.

Solution

a. Percent increase in index : (150.2 - 136.3) / 136.3 *100 = 10.1981 %

b. Converting index to 1996 base:

1996 index : 100

2006 index: 150.2 / 136.3 * 100 = 110.2

c. Net profit of 2006 = 65,035 / 110.2 * 100 = 59,016.45

Net profit has decreased in order to represent value in terms of 1996 base, as the index has risen from 1996 to 2006.