Verispace Software sells inventory management software and reported revenues of $25 million in the most recent...

Verispace Software sells inventory management software and reported revenues

of $25 million in the most recent financial year. You estimate that the total mar-

ket for inventory management software to be $25 billion, growing at 5% a year

for the foreseeable future. If you expect Verispace to have 10% market share of

this market in 10 years, estimate the compounded revenue growth rate over that

period.

Expert Solution

Current Total market revenue for inventory management software = $25 billion = $25 x 1000 million = $25000 million

Growth rate of total market revenue for inventory management software = 5%

Total market revenue after 10 years for inventory management software = Current Total market revenue for inventory management software x (1 + Growth rate of total market revenue for inventory management software)¹⁰ = 25000 x (1 + 5%)¹⁰ = 25000 x (1.05)¹⁰ = 25000 x 1.628894626 = $40722.3656 million

Revenue of Verispace after 10 years = market share of Verispace after 10 years x Total market revenue after 10 years for inventory management software = 10% x 40722.3656 = $4072.23656 million

Current revenue of Verisapce = $25 million

Compounded growth rate over 10 year period of Verispace's revenues = (Revenue of Verispace after 10 years / Current revenue of Verisapce)^1/10 - 1 = (4072.23656 / 25)^1/10 - 1 = = (162.889462)^1/10 - 1 = 1.6641378 - 1 = 0.6641378 = 66.417378% = 66.42% (rounded to two decimal places)

Hence compounded growth rate of revenues of Verispace over 10 years = 66.42%

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