Projecting EPS (number of years)

CFA Level II Equities
#1

I am given a current EPS and a growth rate - the question asks for a projected EPS in 2 years. However, the formula used in the answer is as follows:

EPS3 = EPS0 × (1 + g )3

Why is it using 3 periods? I am pretty sure I am missing some basics here.

#2

The 3 should be to the 3rd power to account for 3 years of compounding.

#3

But why 3 years though if the question is needs a projected EPS in 2 years?

Its got something to do with the difference between projected forward P/E and trailing P/E. The intention is to find the Price using EPS, growth rate in EPS and forward projected P/E after 2 years.

#4

It looks like a type since the answer is using EPS3.

#5

Is it using the EPS at time 0 and looking for the projected value at time 3?

#6

Its using EPS at time 0 and growth rate to get EPS at time 2.

The reason for not using EPS2 is “because it uses the forecasted trailing EPS (or EPS2), thus calculating the wrong future price of $66.99.”