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In the answer it says that corporation tax is not relevant here, “as investors pay market price and receive gross dividends”.
Why is it different here? And for future questions how can I know the difference?
Many thanks
I am not sure where you are finding this question – my Revision Kit does not contain 213 questions 🙂
You will need to be more specific as to the question (or copy it out here).
My guess is that it is either looking at the return to investors, or alternatively calculating the market price of shares and debt. In either case, tax is irrelevant because it is investors who determine the market value of shares and company tax is irrelevant to them.
Company tax is only ever relevant when calculating the cost of debt, because it is the company who gets the benefit of tax relief on the debt interest.
I do suggest that you watch my free lectures where all of this is explained in detail with examples.
The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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