Assuming an Imputation Tax System,calculate the Cost of Equity Capital

question 17

Multiple Choice

Assuming an imputation tax system,calculate the cost of equity capital for XHZ Ltd assuming the market and XHZ both pay fully franked dividends,which are fully utilised by shareholders,the beta of XHZ is estimated to be 1.3.The yield on a 10- year bond is 5.4 per cent and the market risk premium,including the value of franking credits,is estimated to be 6.3 per cent.

• A)15.57 per cent
• B)13.59 per cent
• C)10.35 per cent
• D)9.45 per cent

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Definitions:

Ex-dividend Date

The date on which stocks are traded without the right to receive the next dividend payment, determining who will receive the dividend.

Dividend Payment

A portion of a company's earnings distributed to shareholders, usually on a regular basis.

Stock Ownership

Stock ownership refers to the possession of shares in a corporation, which represents a claim on part of the company's assets and earnings.

Residual View

In corporate finance, this concept suggests that dividends should be paid from the residual or remaining equity after all project investments with positive NPV have been funded.