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The valuation of projects under the dividend imputation tax system
Author(s) -
Monkhouse Peter H.L.
Publication year - 1996
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.1996.tb00306.x
Subject(s) - imputation (statistics) , valuation (finance) , economics , cash flow , econometrics , cost of equity , cost of capital , dividend , free cash flow , discounted cash flow , weighted average cost of capital , dividend policy , actuarial science , financial economics , business , microeconomics , finance , mathematics , profit (economics) , missing data , statistics , capital formation , financial capital
This paper proves that a modified weighted average cost of capital (“WACC”) valuation methodology is a rigorous and practicable method of valuing projects and companies under the Australian dividend imputation tax system. This methodology uses an effective tax rate in calculating both the discount rate and the ungeared after tax cash flow. A cash flow after effective corporate tax is shown to be equivalent to a cash plus value of imputation credit stream. Importantly, this valuation methodology is applicable to returns that are non‐uniform and of finite duration. Also examined is the discounting of equity returns at the company's cost of equity capital. A worked example is presented to clarify and quantify the effects discussed.