Question

National Automobile Parts had sales of $2 million this year. The marketing manager expects sales to grow at a 10 percent compound annual rate over the next 10 years. On this basis, sales in 10 years should be closest to

A) $2,593,722
B) $5,081,309
C) $5,187,485
D) $4,622,885

Answer 1

Using the compound annual growth rate formula, the future sales of National Automobile Parts in 10 years, with a 10 percent annual growth, is approximately $5,187,485, which corresponds to option C.

Step-by-step explanation:

The problem given is about calculating the future sales of National Automobile Parts given a compound annual growth rate (CAGR) of 10 percent over 10 years. To solve this, we use the compound interest formula: Future Value = Present Value x (1 + rate)^n, where the present value is $2 million, the rate is 10 percent or 0.10, and n is the number of years, which is 10.

When we put these numbers into the formula, it becomes: Future Sales = $2,000,000 x (1 + 0.10)^10.

Calculating this, we get: Future Sales = $2,000,000 x (1.10)^10 = $2,000,000 x 2.593742 = $5,187,484.

Therefore, the closest sales figure to the calculated future sales in 10 years is $5,187,485, which corresponds to option C.