Question

Sawyer Corporation's 2017 sales were $8 million. Its 2012 sales were $4 million.

1. At what rate have sales been growing? Round your answer to two decimal places.

     %

2. 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?   

   The statement is correct because 100% divided by 5% equals 20%.  

3. The statement is incorrect because there are 6 years of sales growth between 2012-2017.

4. The statement is incorrect because a company's sales cannot double in such a short time span.

5. The statement is incorrect since the effect of compounding is not considered.

6. The statement is correct since the effect of discounting is considered.

Answer 1

a.We use the formula:  
A=P(1+r/100)^n
where   
A=future value
P=present value  
r=rate of interest
n=time period.

8=4*(1+r/100)^5

(8/4)^(1/5)=(1+r/100)

(1+r/100)=1.1487

r=1.1487-1

=14.87%(Approx)

b.Hence the statement is not correct since the effect of compounding ie 'interest earned on interest' factor is not considered.

Hence the correct option is:

The statement is incorrect since the effect of compounding is not considered.