Question

METHODS AND APPLICATIONS Suppose that a company's sales were $1,000,000 five years ago and are $7,000,000 at the end of the five years. Find the geometric mean growth rate of sales. (Round your answer to 4 decimal places.)

Answer 1

To find the geometric mean growth rate of sales, you can use the formula:

Geometric Mean Growth Rate = (Final Value / Initial Value) ^ (1 / Number of Years) - 1

In this case:
- Initial Value (5 years ago) = $1,000,000
- Final Value (at the end of 5 years) = $7,000,000
- Number of Years = 5

Plug these values into the formula:

Geometric Mean Growth Rate = ($7,000,000 / $1,000,000) ^ (1 / 5) - 1

Geometric Mean Growth Rate ≈ 1.2712 - 1 ≈ 0.2712 (rounded to 4 decimal places)

So, the geometric mean growth rate of sales is approximately 0.2712 or 27.12%.