This buyback model will help identify conditions under which we may benefit from company buybacks.
The attached spreadsheet model has been developed* to analyse the effectiveness of a companies’ buybacks for individual shareholders at varying marginal tax rates (MTR), and it includes super funds that are taxed at 15 percent.
The model compares the buyback price, comprising the capital and dividend component, with the price that would be obtained by selling the shares directly on the market.
We have assumed that individual and super funds are fully entitled to the franking credits; and capital losses incurred can be fully offset against capital gains. Also, the discount capital gain method applies, and the market price for the company is at the close of trading on the last day of the buyback offer. Amounts have been rounded to the nearest cent.
* Originally developed by Kim Wyatt, who is a senior Accounting lecturer at Monash University.