Gourmet Cheese Shoppe opened at the end of 2001.In its first full year of operations,2002,earnings per share (EPS)was $0.26.Four years later,in 2005,EPS was up to $0.38,and 7 years after that,in 2012,EPS was up to $0.535.It appears that the first 4 years represented a supernormal growth situation and since then a more normal growth rate has been sustained.What are the rates of growth for the earlier period and for the later period?
A) 6%;5%
B) 6%;3%
C) 10%;8%
D) 10%;5%
E) 12%;7%

Question

Quizplus · Accepted Answer

To find the rate of growth, we can use the formula:

Growth rate = (Ending EPS / Beginning EPS) ^ (1/number of years) - 1

For the first period (2002-2005):

Growth rate = ($0.38 / $0.26) ^ (1/3) - 1 = 0.099 or 9.9%

For the second period (2005-2012):

Growth rate = ($0.535 / $0.38) ^ (1/7) - 1 = 0.048 or 4.8%

Therefore, the answer is D) 10%;5%.

Gourmet Cheese Shoppe Opened at the End of 2001