a) Assuming an imputation tax system, 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	$3	$3
Corporate tax (30%)	-$0.90	-$0.90
Net Profit After Tax	$2.10	$2.10
Shareholder level
Cash dividends	$2.10	$2.10
Gross-up adjustment
Grossed-up dividends	A	A
Personal Tax
Franking credit
Tax payable or refund	B	C
Dividend after taxes		D

b) ACM Corporation has one million shares outstanding selling at $10 each. It plans to repurchase 200,000 shares at the market price. What will its market capitalisation be after the repurchase? What will its share price be? (3.5 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 $15.68 million per year in free cash flows after corporate taxes, into perpetuity, with no growth expected. The expected dividend payable to shareholders is $14 million per year, into perpetuity. 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) Assume a classical tax system and calculate the market value of equity. (1 mark)

ii) Assume a classical tax system and calculate the market value of the firm. (1 mark)

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. (2.5 marks)