Question

Longstreet Corporation's sales today are $10 million. Sales are expected to grow by $1 million in each of the next 5 years, so that sales in 5 years are expected to be $15 million. What average rate of annual growth does Longstreet expect over the next five years?

(A) 8.70%
(B) 8.96%
(C) 8.45%
(D) 9.23%
(E) 8.20%

Answer 1

Answer:

The correct answer is C: Average annual rate=8.45%

Explanation:

Giving the following information:

Longstreet Corporation's sales today are $10 million. Sales are expected to grow by $1 million in each of the next 5 years.

Year 1= (11million/10million)-1= 0.10

Year2= (12million/11million)-1= 0.0909

Year 3= (13million/12million)-1= 0.083

Year 4= (14million/13million)-1= 0.0769

Year 5= (15million/14million)-1= 0.0714

Average annual rate= (0.10+0.0909+0.083+0.0769+0.0714)/5= 0.0845*100= 8.45%