On 30 June Geelong Piping Ltd paid a dividend of 40 cents per share that was fully franked.If Geelong Piping Ltd 's share price on 30 May was $4.18 and had fallen to $3.87 by the end of June,what is the gross return after company tax but before personal tax for a shareholder on the top marginal tax rate of 47 per cent?

Question

Quizplus · Accepted Answer

The gross return after company tax but before personal tax can be calculated by considering both the dividend received and the change in share price. The dividend is 40 cents per share, and the share price fell from $4.18 to $3.87, a decrease of 31 cents per share. The gross return is calculated as the sum of the dividend received and the change in share price, divided by the share price at the beginning of the period.Gross return = (Dividend + Change in share price) / Initial share price= (0.40 - 0.31) / 4.18= 0.09 / 4.18= 0.0215311 or 2.15%However, since the dividend is fully franked, we need to gross up the dividend to include the company tax paid at the rate of 30%. The grossed-up dividend is calculated as Dividend / (1 - Company tax rate).Grossed-up dividend = 0.40 / (1 - 0.30) = 0.40 / 0.70 = 0.5714Now, recalculate the gross return using the grossed-up dividend:Gross return = (Grossed-up dividend + Change in share price) / Initial share price= (0.5714 - 0.31) / 4.18= 0.2614 / 4.18= 0.0625 or 6.25%Therefore, the correct answer is D) 6.25 percent.

On 30 June Geelong Piping Ltd Paid a Dividend of 40