a) Assume an imputation tax system and show the values for A, B, C and D...

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a) Assume an imputation tax system and show the values for A, B, C and D below. Show all workings and attach a minus sign ('-') to the value if it is a cash outflow. (4 marks) Marginal tax rate 45% 19% Corporate level Net Profit Before Tax Corporate tax (30%) Net Profit After Tax Shareholder level Cash dividends $4 $4 -$1.20 -$1.20 $2.80 $2.80 $2.80 $2.80 Gross-up adjustment A Grossed-up dividends Personal Tax Franking credit Tax payable or refund B Dividend after taxes C D b) Richmond Ltd has generated profits before tax in Australia of $20 million. Its corporate tax rate is 30% and Richmond has a retention rate of 60%. What is the value of franking credits? What is the value of undistributed franking credits? (3 marks) c) FIN222 Ltd carries $24 million in debt. The market value of debt matches its book value of $24 million. The firm expects to generate $15 million per year in free cash flows after corporate taxes and these free cash flows are expected to grow at 2% per year in perpetuity. Each year, FIN222 Ltd is expected to pay out 70% of its free cash flows as dividends. The cost of debt is 10% before tax and the cost of equity to the firm is 12%. Corporate tax rate is 30%. Assume that all of its shareholders can fully utilise the franking credits. i) ii) Assume a classical tax system and calculate the market value of equity. (1 mark) Assume a classical tax system and calculate the WACC. (2 marks) iii) Assume an imputation tax system and calculate the market value of equity. (2 marks) iv) Assume an imputation tax system and calculate the WACC. (2 marks) a) Assume an imputation tax system and show the values for A, B, C and D below. Show all workings and attach a minus sign ('-') to the value if it is a cash outflow. (4 marks) Marginal tax rate 45% 19% Corporate level Net Profit Before Tax Corporate tax (30%) Net Profit After Tax Shareholder level Cash dividends $4 $4 -$1.20 -$1.20 $2.80 $2.80 $2.80 $2.80 Gross-up adjustment A Grossed-up dividends Personal Tax Franking credit Tax payable or refund B Dividend after taxes C D b) Richmond Ltd has generated profits before tax in Australia of $20 million. Its corporate tax rate is 30% and Richmond has a retention rate of 60%. What is the value of franking credits? What is the value of undistributed franking credits? (3 marks) c) FIN222 Ltd carries $24 million in debt. The market value of debt matches its book value of $24 million. The firm expects to generate $15 million per year in free cash flows after corporate taxes and these free cash flows are expected to grow at 2% per year in perpetuity. Each year, FIN222 Ltd is expected to pay out 70% of its free cash flows as dividends. The cost of debt is 10% before tax and the cost of equity to the firm is 12%. Corporate tax rate is 30%. Assume that all of its shareholders can fully utilise the franking credits. i) ii) Assume a classical tax system and calculate the market value of equity. (1 mark) Assume a classical tax system and calculate the WACC. (2 marks) iii) Assume an imputation tax system and calculate the market value of equity. (2 marks) iv) Assume an imputation tax system and calculate the WACC. (2 marks)