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22 September, 08:44

Transent Foods announced that its current sales are $1,233,450 this year. The company forecasts a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce earnings of $3 million? (Round off to the nearest year.)

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  1. 22 September, 08:50
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    Approximately 6 years

    Explanation:

    Use Future value formula to calculate the period:

    FV = Target Earning = $3 million

    PV = Current Sales = $1,233,450

    g = growth of sales = 16%

    n = number of years = ?

    FV = PV (1 + g) ^n

    $3,000,000 = $1,233,450 x (1 + 16%) ^n

    $3,000,000 / $1,233,450 = (1 + 0.16) ^n

    2.4322 = 1.06^n

    log 2.4322 = log 1.16^n

    n = log 2.4322 / log 1.16

    n = 5.99

    n = 6 years (Rounded off to nearest whole year)
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