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Adapting the APV valuation methodology and the beta gearing formula to the dividend imputation tax system
Author(s) -
Monkhouse Peter H.L.
Publication year - 1997
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.1997.tb00314.x
Subject(s) - imputation (statistics) , dividend , economics , valuation (finance) , econometrics , equity (law) , actuarial science , financial economics , business , mathematics , accounting , finance , statistics , missing data , political science , law
This paper adapts the APV valuation methodology and the formula for gearing beta to the Australian dividend imputation tax system. The APV formulation is shown to be able to be applied in the dividend imputation tax system by simply replacing the statutory tax rate with an effective tax rate in the calculation of the “cash flows”. The effect of the dividend imputation tax system on a company's value is shown to be easily bounded using the APV formulation by making the extreme assumption that imputation credits are either: fully distributed and fully valued by the market; or that they are worthless. This paper also quantifies the effect of changing the assumed value of imputation credits on: (i) the value of the interest tax shield of debt; and (ii) the levered, or equity, beta.