Question

Exercise 5.2

Fred's Hardware and Hobby House expects its sales to increase at a constant rate of 8 percent per year over the next three years. Current sales are $500,000.

Complete the following table by forecasting sales for each of the next three years.

Year	Forecasted Sales
	(Dollars)
1
2
3

If sales in 2003 were $300,000 and they grew to $500,000 by 2007 (a four-year period), the actual annual compound growth rate was:

10.76%

13.62%

18.56%

Which of the following are some of the hazards of employing a constant rate of growth forecasting model? Check all that apply.

It assumes that there are no cyclical variations.

It ignores seasonal trends.

It is ill-suited to estimate secular trends.

Answer 1

Exercise 5.2
Fred's Hardware and Hobby House expects its sales to increase at a constant rate of 8 percent per year over the next three years. Current sales are $500,000.
Complete the following table by forecasting sales for each of the next three years.
Year	Forecasted Sales (Dollars)
0	$ 5,00,000.00
1	$ 5,40,000.00
2	$ 5,83,200.00
3	$ 6,29,856.00
If sales in 2003 were $300,000 and they grew to $500,000 by 2007 (a four-year period), the actual annual compound growth rate was:
10.76%
13.62%
18.56%
CAGR = (End Value/Start Value)^(1/Years)-1 = ( ($500,000/$300,000)^(1/4))-1	13.62%
Which of the following are some of the hazards of employing a constant rate of growth forecasting model? Check all that apply.
It assumes that there are no cyclical variations.
It ignores seasonal trends.
It is ill-suited to estimate secular trends.

Exercise 5.2
Fred's Hardware and Hobby House expects its sales to increase at a constant rate of 8 percent per year over the next three years. Current sales are $500,000.
Complete the following table by forecasting sales for each of the next three years.
Year	Forecasted Sales (Dollars)
0	500000
1	=$B$5*1.08^A6
2	=$B$5*1.08^A7
3	=$B$5*1.08^A8
If sales in 2003 were $300,000 and they grew to $500,000 by 2007 (a four-year period), the actual annual compound growth rate was:
0.1076
0.1362
0.1856
CAGR = (End Value/Start Value)^(1/Years)-1 = ( ($500,000/$300,000)^(1/4))-1	=((500000/300000)^(1/4))-1
Which of the following are some of the hazards of employing a constant rate of growth forecasting model? Check all that apply.
It assumes that there are no cyclical variations.
It ignores seasonal trends.
It is ill-suited to estimate secular trends.