In its first year of operations, 2002, the Gourmet Cheese Shoppe had earnings per share (EPS) of $0.26.Four years l in 2006, EPS was up to $0.38, and 7 years after that, in 2013, 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 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 for the earlier period (from 2002 to 2006), we can use the formula:

Growth rate = (Ending EPS / Beginning EPS) ^ (1 / Number of Years) - 1

Plugging in the values, we get:

Growth rate = ($0.38 / $0.26) ^ (1 / 4) - 1
Growth rate = 1.10 - 1
Growth rate = 0.10 or 10%

To find the rate of growth for the later period (from 2006 to 2013), we can use the same formula:

Growth rate = (Ending EPS / Beginning EPS) ^ (1 / Number of Years) - 1

Plugging in the values, we get:

Growth rate = ($0.535 / $0.38) ^ (1 / 7) - 1
Growth rate = 1.05 - 1
Growth rate = 0.05 or 5%

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

In Its First Year of Operations, 2002, the Gourmet Cheese