Question

Problem 5.11 (Growth Rates) Question 9 of 20 Check My Work (3 remaining) eBook Sawyer Corporation's 2018 sales were $11 million. Its 2013 sales were $5.5 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

Answer 1

Answer a.

Sales, 2018 = $11,000,000
Sales, 2013 = $5,500,000
Period = 5 years

Growth Rate = (Sales, 2018 / Sales, 2013)^(1 / Period) - 1
Growth Rate = ($11,000,000 / $5,500,000)^(1 / 5) - 1
Growth Rate = 2^(1 / 5) - 1
Growth Rate = 1.1487 - 1
Growth Rate = 0.1487 or 14.87%

Answer b.

This statement is incorrect since the effect of compounding is not considered.