Question
The earnings of Wyse Plc are expected to grow at an annual rate of 6% over the next five years and then slow to an
The earnings of Wyse Plc are expected to grow at an annual rate of 6% over the next five years and then slow to an estimated constant growth rate of 4% per year indefinitely. Wyse plc has recently paid a dividend of 20 cent per share, and the company is expected to increase future dividend payments in line with earnings growth.
Required:
(i) Use the Dividend Valuation Model (DVM) to estimate the value of Wyses shares to an investor who requires a 12% rate of return.
(ii) Explain the likely impact of each of the following on the value of Wyses shares: In response to the international recession, Central Banks have sharply reduced official interest rates, and this has had the effect of reducing the required rates of return on all financial investments across the entire stock market. Wyse s exports to the UK represent a significant proportion of its overall business turnover. The weakening of the pound sterling against the Euro has resulted in a significant erosion of Euro profit margins on these exports, and this is expected to continue for the foreseeable future.
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