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26 October, 23:04

Finor Traps manufactures an innovative mouse trap. Total sales for the current year is $325,000. The company expects its sales to go up to $500,000 in five years. What is the expected growth rate in sales for this firm

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  1. 26 October, 23:30
    0
    9%

    Explanation:

    to calculate the compounding growth rate we can use the future value formula:

    future value = present value x (1 + r) ⁿ

    future value = $500,000 present value = $325,000 r = growth rate compounded yearly = ? n = 5 years

    $500,000 = $325,000 x (1 + r) ⁵

    (1 + r) ⁵ = $500,000 / $325,000 = 1.53846

    1 + r = ⁵√1.53846 = 1.08997

    r = 1.08997 - 1 = 0.08997 or 8.997%≈ 9%

    Even though the present value formula is used to calculate compounding interest rate, it can also be used to calculate compounding growth rate.
  2. 27 October, 01:36
    0
    Using equation

    F=P (1+i) ^n

    n=5

    F=500,000

    P=325,000

    500,000=325,000 (1+i) ^5i

    i=8.99%
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