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21) Sales Forecasting: You were asked at your new company to forecast sales for the coming...

21) Sales Forecasting: You were asked at your new company to forecast sales for the coming year. Utilizing the Compound Average Growth Rate, you have gone out and collected the data for the prior three years (noted below). Using this data, compute the a. compound growth rate for each of the years b. forecast next year’s sales by using the two-year average growth rate. Year Sales

2012 2,400,000

2013 2,750,000

2014 3,500,000

2015 ?

Solutions

Expert Solution

a.

Compute the growth rate for year 2013, using the equation as shown below:

Growth rate = (Year 2013 sales – Year 2012 sales)/ Year 2012 sales

                    = ($2,750,000 - $2,400,000)/ 2,400,000

                    = $350,000/ $2,400,000

                    = 14.583333333%

Hence, the growth rate for the year 2013 is 14.583333333%.

Compute the growth rate for the year 2014, using the equation as shown below:

Growth rate = (Year 2014 sales – Year 2013 sales)/ Year 2013 sales

                    = ($3,500,000 - $2,750,000)/ 2,750,000

                    = $750,000/ $2,750,000

                  = 27.272727272%

Hence, the growth rate for the year 2013 is 27.272727272%.

b.

Compute the average growth rate, using the equation as shown below:

Average rate = (Year 2013 growth rate + Year 2014 growth rate)/ 2

                      = (14.583333333% + 27.272727272%)/ 2

                      = 41.856060605%/ 2

                      = 20.9280303025%

Hence, the average rate is 20.9280303025%.

Compute the sales for the year 2015, using the equation as shown below:

Sales = Year 2014 sales*(1 + Growth rate)

         = $3,500,000*(1 + 0.209280303025)

         = $4,232,481.06057

Hence, the sales for the year 2015 is $4,232,481.06057.

jeff jeffy answered 1 year ago
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