The following information has been collected from the most recent three years of financial statements for the Dougherty Corporation: (All numbers are in thousands.)
-Refer to the information above. What was the average annual growth rate of Dougherty's cash flows from 2006 to 2008? Round your answer to the nearest tenth of a percent.

Question

The following information has been collected from the most recent three years of financial statements for the Dougherty Corporation: (All numbers are in thousands.) 
-Refer to the information above. What was the average annual growth rate of Dougherty's cash flows from 2006 to 2008? Round your answer to the nearest tenth of a percent.

Quizplus · Accepted Answer

To calculate the average annual growth rate of cash flows, we use the formula:

Growth rate = (Cash flow in year 3 / Cash flow in year 1) ^(1/3) - 1

Plugging in the values from the table, we get:

Growth rate = (180,000 / 85,000) ^(1/3) - 1
Growth rate = 1.211 ^(1/3) - 1
Growth rate = 0.211 or 21.1%

Therefore, the average annual growth rate of Dougherty's cash flows from 2006 to 2008 was 21.1%. The answer is B. To calculate the average annual growth rate, we need to use the formula:

[(Ending Value / Beginning Value)^(1/number of years)] - 1

For cash flows, the beginning value is the cash flow from 2006, and the ending value is the cash flow from 2008. Plugging in the numbers, we get:

[(89,000 / 33,000)^(1/2)] - 1 = 0.211 or 21.1%

Therefore, the average annual growth rate of Dougherty's cash flows from 2006 to 2008 was 21.1%. The best choice is B.

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