Corporate Finance: A Focused Approach (mindtap Course List)
Corporate Finance: A Focused Approach (mindtap Course List)
7th Edition
ISBN: 9781337909747
Author: Michael C. Ehrhardt, Eugene F. Brigham
Publisher: South-Western College Pub
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Chapter 4, Problem 21P

a.

Summary Introduction

To Determine: The rate at which the sales grow.

b.

Summary Introduction

To Discuss: The incorrect assumption in the given calculation.

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Sales for Hanebury Corporation’s just-ended year were $12 million. Sales were $6 million 5 years earlier. a. At what rate did sales grow? b. Suppose someone calculated the sales growth for Hanebury in part a as follows: “Sales doubled in 5 years. This represents a growth of 100% in 5 years; dividing 100% by 5 results in an estimated growth rate of 20% per year.” Explain what is wrong with this calculation.
Stetson Inc.'s sales for the 2021 were $16 million. Sales were $8 million 5 years earlier. (a) At what rate did the sales grow? (b) Supose someone calculated sales growth for Stetson in part (a) as follows: "Sales doubled in 5 years. This represents a growth of 100 % in 5 years; dividing 100% by 5 results in an estimated growth rate of 20% per year" Explain what is wrong with this calculation.
Sawyer Corporation's 2018 sales were $5 million. Its 2013 sales were $2.5 million. a. At what rate have sales been growing? Round your answer to two decimal places. 14.87 % b. 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 incorrect because there are 6 years of sales growth between 2013 and 2018.
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