Question

Last year Thomson Inc's earnings per share were $3.50, and its growth rate during the prior 5 years was 6.6% per year. If that growth rate were maintained, how many years would it take for Thomson's EPS to triple?

a. 17.19
b. 15.99
c. 13.41
d. 15.13
e. 15.81

Answer 1

Answer:

a. 17.19

Explanation:

We use the formula:  A=P(1+r/100)^n

A= P ( 1+ 2/100) ^ n  

Let P = $ 3.5

Hence, A= $ 3*3.50

= $ 10.50

Hence, 10.50 = 3.50*(1+6.6/100) ^n

or 3 = (1.066) ^ n

Taking log on both sides we get,  log 3 = n log (1.066)

Hence, n = Log 3/ log (1.066)

n = 17.18909595 Years