Omniva Inc. just generated earnings per share of $3.75 for the fiscal year ending September 30, 2014. The firm is expected to achieve earnings per share of $8.76 in 5-years. At what rate will Omniva Inc.'s earnings per share be growing over this 5-year period? (Round off to the nearest 1/10 percent)
A) 15.7%
B) 18.5%
C) 21.3%
D) 13.4%

Question

Quizplus · Accepted Answer

We can calculate the annual growth rate using the formula:

Ending EPS / Beginning EPS ^ (1/n) - 1

Where n is the number of years.

Plugging in the given values:

$8.76 / $3.75 ^ (1/5) - 1 = 0.185 = 18.5%

Therefore, Omniva Inc.'s earnings per share will be growing at a rate of 18.5% over the 5-year period. The closest answer choice is B, 18.5%.