Suppose that a company's annual sales were $1,200,000 in 1999.The annual growth rate of sales from 1999 to 2000 was 16%,from 2000 to 2001 was -5%,and from 2001 to 2002 was 22%. The geometric mean growth rate of sales over this three-year period is calculated as 10.37%.Use the geometric mean growth rate and determine the forecasted sales for 2004.
A)1,780,678
B)1,200,014
C)1,965,337
D)1,613,371
E)1,422,197

Question

Quizplus · Accepted Answer

Using the geometric mean growth rate of 10.37%, we can calculate the forecasted sales for 2004 as:

Sales in 2000 = $1,200,000 x (1+16%) = $1,392,000
Sales in 2001 = $1,392,000 x (1-5%) = $1,322,400
Sales in 2002 = $1,322,400 x (1+22%) = $1,614,848
Sales in 2003 = $1,614,848 x (1+10.37%) = $1,780,674.25
Sales in 2004 = $1,780,674.25 x (1+10.37%) = $1,965,337.01

Therefore, the forecasted sales for 2004 is $1,965,337, which is option C.

Suppose That a Company's Annual Sales Were $1,200,000 in 1999