A commercial lease calls for a minimum rate of 1,200 per month plus 4 percent of the annual gross business exceeding 150,000. If the total rent paid at the end of one year was 19,200, how much business did the tenant do during the year?

A commercial lease calls for a minimum rate of 1,200 per month plus 4 percent of the annual gross business exceeding 150,000. If the total rent paid at the end of one year was 19,200, how much business did the tenant do during the year?

• A. 150,000
• B. 270,000
• C. 200,000
• D. 300,000

Answer: (B)

Base rent plus a percentage rent on sales over a threshold is how this lease calculates total rent. The fixed portion is 1,200 per month, which amounts to 14,400 for the year. The total rent paid is 19,200, so the portion from the percentage rent is 19,200 minus 14,400, which equals 4,800. This 4,800 is 4% of the amount by which annual gross sales exceed 150,000. If we let the annual gross sales be G, then 0.04*(G - 150,000) = 4,800. Solving gives G - 150,000 = 4,800 / 0.04 = 120,000, so G = 270,000. Check: 0.04*(270,000 - 150,000) = 4,800, and 14,400 + 4,800 = 19,200. Therefore the tenant did 270,000 in business.

Base rent plus a percentage rent on sales over a threshold is how this lease calculates total rent. The fixed portion is 1,200 per month, which amounts to 14,400 for the year. The total rent paid is 19,200, so the portion from the percentage rent is 19,200 minus 14,400, which equals 4,800. This 4,800 is 4% of the amount by which annual gross sales exceed 150,000. If we let the annual gross sales be G, then 0.04*(G - 150,000) = 4,800. Solving gives G - 150,000 = 4,800 / 0.04 = 120,000, so G = 270,000. Check: 0.04*(270,000 - 150,000) = 4,800, and 14,400 + 4,800 = 19,200. Therefore the tenant did 270,000 in business.