Question

Infosys Technologies, Inc., an Indian technology company, reported net income of $419,000,000 this year. Analysts expect the company’s earnings to be $1,650,000,000 in five years. What is the expected growth rate in the company’s earnings?

Answer 1

To calculate expected growth rate in the company’s earnings we will use the formula

Future Earnings = Current Earnings * (1+g)ⁿ

Where n is the number of years

g is the growth rate

Current Earnings = $419,000,000

Future Earnings = $1,650,000,000

n = 5

Therefore

$1,650,000,000 = $419,000,000 * (1+g)⁵

g = ($1,650,000,000 / $419,000,000)^1/5 - 1

g = (3.93795)^1/5 - 1

(Rounded to 5 decimal places)

g = 1.31539 - 1

g = .31539

or 31.539%

The expected growth rate in company's earnings is 31.539%.