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    Compounded Annual Growth Rate

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    Sales for Hanebury Corporation's just-ended year were $12 million. Sales were $6 million 5 years earlier. Suppose someone calculated the sales growth for Hanebury as follows: Sales doubled in 5 years. This represents a growth of 100% in 5 years; dividing 100% by 5 results in an estimated growth rate of 20% per year.

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    Solution Preview

    The question like this requires you to calculate the compounded average growth rate (CAGR). You just cannot divided the growth % by the no. of years. As per your calculation the yearly sales increases by 1.2m equally and so yearly sales are as below...

    Year0 = ...

    Solution Summary

    The solution provides explanation to Compounded Annual Growth Rate calculation.