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%

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%