Solution:Let C.P. of 100 unit Milk =₹ 100
Then, C.P. of 120 unit milk = 120
and C.P. of 20 unit water + 100 unit milk = ₹ 100
∴ S.P. of 20 unit water + 100 unit milk = ₹ 120
∴ Profit = ₹ 120 - 100 = ₹ 20
= 20%
Hence, proportion of water must be added to milk
= 20: 100 = 1: 5.