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:

Current Profits

The earnings a company has generated during a particular period, not taking into account future liabilities or investments.

Variable Costing

A costing method that includes only variable production costs (materials, labor, and overhead) in product costs, excluding fixed overhead expenses.

Cost Per Unit

The calculation of the total cost of producing a product or providing a service divided by the number of units produced or serviced.

Finished Goods

Products that have completed the manufacturing process but have not yet been sold or distributed to end users.