Last year Thomson Inc's earnings per share were $3.50,and its growth rate during the prior 5 years was 10.2% per year.If that growth rate were maintained,how many years would it take for Thomson's EPS to triple?

Question

Quizplus · Accepted Answer

First, we need to find out the expected growth rate needed to triple the earnings per share (EPS). We can use the following formula:

Expected growth rate = (triple the EPS / current EPS)^(1/number of years) - 1

Triple the EPS = $3.50 x 3 = $10.50
Current EPS = $3.50

Expected growth rate = (10.50 / 3.50)^(1/x) - 1
Expected growth rate = 2^(1/x) - 1

Now we can plug in the given growth rate to find out how many years it would take:

2.102 = 2^(1/x)
Log both sides:
log(2.102) = log(2^(1/x))
log(2.102) = (1/x) log(2)
x = log(2.102) / log(2)
x = 11.31

Therefore, it would take approximately 11.31 years for Thomson's EPS to triple. The closest answer choice is C.

Last Year Thomson Inc's Earnings Per Share Were $3