Question

Sawyer Corporation's 2018 sales were $7 million. Its 2013 sales were $3.5 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 2013 = $3.5 million

- Sales in 2018 = $7 million

Calculating the sales Growth rate during the 5 year period:-

Sales Growth Rate = (Sales in 2018/Sales in 2013)^(1/n) - 1

where, n = no of years = 5

Sales Growth Rate = ($7 million/$3.5 million)^(1/5) - 1

Sales Growth Rate = 1.1487 - 1

Sales Growth Rate = 14.87%

So, sales been growing at 14.87% per year

- The 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 incorrect. As they have calculated Avearge arithmetic Growth rate which is not a correct way to calculate the Growth rate. Avearge arithmetic Growth rate ignores the compounding factor which is important basis to calculate Yearly Growth over a period of time.

Thus, the statement is incorrect.

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