Question

The following information was available concerning the revenues of Caterpillar, Inc. and the consumer price index for urban goods (CPI-U).

Year	Revenues (in thousands)	Average CPI-U	Constant Dollar Revenues in 2013 Dollars
2010	$42,588	219
2011	$60,138	226
2012	$65,875	230
2013	$55,656	233

7.4 What was the percentage growth rate in revenue during 2013 *after* adjustment for inflation?

		-15.5%
		-16.6%
		20%
		-15.8%

Answer 1

Answer = -16.6%

Calculation:

Revenue in 2012 (a)		65875
Revenue in 2013 (b)		55656
Decrease in Revenue = c = b-a	(55656 - 65875)	-10219
% decrease in revenue = d = c / a	(Decrease in Revenue / Revenue for 2012)	-15.51%

Average CPI in 2012 (a)		230
Average CPI in 2013 (b)		233
Increase in CPI = c = b-a	(233-230)	3
% increase in CPI = d = c/a	(Increase in CPI / Average CPI for 2012)	1.30%

% growth in revenue after adjustment of inflation = (1 + revenue increase %) / (1 + Inflation %) - 1

= (1+(-15.51%)) / (1+1.3%) - 1

= (1+(-15.51/100)) / (1+1.3/100) - 1

= (1-0.1551) / (1.013) - 1

= (0.8449 / 1.013) - 1

= 0.834057 - 1

= -0.16594

= (-0.16594*100)%

-16.594%

-16.6%