Question

Sawyer Corporation's 2017 sales were $9 million. Its 2012 sales were $4.5 million. At what rate have sales been growing? Round your answer to two decimal places. 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?

Answer 1

Sales in 2012 = 4.50 Million

Sales in 2017 = 9 million

TIme period = 2017 - 2012 = 5 years

Sales in 2017 = Sales in 2012 * (1 + Rate)^N

9 = 4.50 * (1 + Rate)^5

(1 + Rate)^5 = 9 / 4.50

(1 + Rate)^5 = 2

(1 + Rate) = 2^0.20

(1 + Rate) = 1.1487

Rate = 0.1487

Or 14.87%

The statement that rate would grow at 20% per year is incorrect as sales grow at a compinded annual growth rate rather than a simple growth rate.