Author Question: A manufacturer of LCD televisions has seen sales increase from 125,000 units per year to 500,000 ... (Read 65 times)

Bernana · **on:** Jul 10, 2018

A manufacturer of LCD televisions has seen sales increase from 125,000 units per year to 500,000 units per year in 8 years.

What has been the firm's average annual rate of increase in the number of television sets sold? Use the Rule of 72 to determine your answer.
A) The average annual rate of change has been between 10 and 11.
B) The average annual rate of change has been between 18 and 19.
C) The average annual rate of change has been between 15 and 16.
D) There is not enough information to answer this question.

Question 2

Patrick Company expects to generate free-cash of 120,000 per year forever.

If the firm's required return is 12 percent, the market value of debt is 300,000, the market value of preferred stock is 70,000, and the company has 100,000 shares of stock outstanding. What is the value of Patrick's stock?
A) 6.30
B) 10.00
C) 7.00
D) 9.70

brbarasa · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: B
Explanation: B) Unit sales doubled from 125,000 to 250,000 and doubled again to 500,000 in 8 years. Thus, at a doubling rate of every four years the Rule of 72 suggests an annual rate of = 18. Via the formula the actual growth rate is 18.92 per year.

Answer to Question 2

A