Somars Company Earnings Growth Rate Calculation

What was the growth rate in earnings per share (EPS) over the 6-year period?

Six years ago, Somars Company earned $1.10 per share. Its earnings this year were $4.35. Choose the correct option:

a) 25.27%

b) 25.95%

c) 23.94%

d) 25.75%

e) 24.89%

Answer:

Six years ago, Somars Company earned $1.10 per share. Its earnings this year were $4.35. The growth rate in earnings per share (EPS) over the 6-year period is 25.95%. The correct answer is option (b).

The growth rate in earnings per share (EPS) over the six-year period can be calculated using the formula;

Growth rate = (End value / Initial value)^(1 / Number of years) - 1

We need to find the growth rate in EPS over the six-year period, given the earnings per share data for two years, namely, six years ago and the current year.

Earnings per share (EPS) six years ago = $1.10

Earnings per share (EPS) in the current year = $4.35

Number of years = 6

Using the formula,

Growth rate = ($4.35 / $1.10)^(1 / 6) - 1

Growth rate = 1.25^(1 / 6) - 1

Growth rate = 0.2595 or 25.95%

Therefore, the correct answer is option b) 25.95%.