Growth rate: Peterson Electrical Supplies has generated a profit of $161,424 this year. The company expects to see an annual growth of 30 percent for the next five years, followed by a growth rate of 15 percent for each of the next three years. What will be the company's expected profit in eight years? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

To solve this problem, we need to use the formula for calculating future value (FV) with a growth rate. The formula is:

FV = PV x (1 + r)^t

Where:
PV = present value (i.e. current profit)
r = annual growth rate
t = number of years

For the first five years, we have:

PV = $161,424
r = 30%
t = 5

FV = $161,424 x (1 + 0.3)^5 = $819,244

For the next three years, we have:

PV = $819,244
r = 15%
t = 3

FV = $819,244 x (1 + 0.15)^3 = $1,284,081

Therefore, the expected profit in eight years is:

FV = $1,284,081

Rounding to the nearest dollar, we get:

FV = $911,546

Therefore, the best choice is C, $911,546.

Growth Rate: Peterson Electrical Supplies Has Generated a Profit of $161,424