Submitted by: Submitted by venaxia2014
Views: 63
Words: 645
Pages: 3
Category: Business and Industry
Date Submitted: 03/30/2014 08:00 AM
ESTIMATION OF GROWTH RATES
Question 1
|Year |EPS |Growth rate |
|1987 |$0.67 | |
|1988 |$0.77 |14.93% |
|1989 |$0.90 |16.88% |
|1990 |$1.10 |22.22% |
|1991 |$1.31 |19.09% |
|1992 |$1.51 |15.27% |
| | | |
|A. Arithmetic Average = | |17.68% |
|B. Geometric Average = | |17.65% |
C. The geometric average considers the compounded effects of growth. The arithmetic average does not.
Question 2
|A. Linear Regression = |EPS = 0.4413 + 0.172 (t) | | |
|Growth rate from this regression model equals |$0.172 a year. | |
| | | | | | |
|B. Log-linear Regression = |EPS = -0.5841 + 0.1674 t | | |
|Growth rate from this regression model equals 16.74% a year. | |
| | | | | | |
|C. Expected EPS next year using linear regression: | |
|= 0.4413 + 0.172 (7) = $1.65 | |
|Expected EPS next year using log-linear regression: |
|= Exp(-0.5841 + 0.1674 (t)) = $1.80 |
| | | | |...