GROWTH RATES Sawyer Corporation\'s 2015 sales were $13 million. Its 2010 sales w
ID: 2808131 • Letter: G
Question
GROWTH RATES Sawyer Corporation's 2015 sales were $13 million. Its 2010 sales were $6.5 million. a. At what rate have sales been growing? Round your answer to two decimal places. b. Suppose someone made this statement: "Sales doubled in 5 years. This represents a growth of 100% in 5 years, so, dividing 100% by 5, we find the growth rate to be 20% per year." Is the statement correct? -Select- -Select- The statement is correct because 100% divided by 5 equals 20%. The statement is incorrect because there are 6 years of sales growth between 2005 and 2010. The statement is incorrect because a company's sales cannot double in such a short time span. The statement is incorrect since the effect of compounding is not considered. The statement is correct since the effect of discounting is considered.Explanation / Answer
a. Sales at the end of 2015 = $13 M and at the ned of 2010 = $6.5 M.
The formula for calculating growth rate=(Sales at the end of the period/Sales at the beginning) ^1/T - 1
Where T = No of years in the period, in this case 5 years.
Hence growth rate = (13/6.5)^1/5 - 1 = .1486 or 14.86%
b. The statement is incorrect because the effect of compounding is not considered. As seen in the above example $6.5 M doubled in 5 years. But the rate of growth came to be 14.86% and not 20%.
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