This paper examines four issues associated with the Officer model, in the context of estimating the cost of equity capital for regulatory purposes. The conclusions are thus. First, regarding the issue of foreign investors, continued use of a version of the Capital Asset Pricing Model that assumes that national share markets are segmented rather than integrated (such as the Officer model) is recommended. Second, a value for 'gamma' of 1 rather than the generally employed figure of .50 is recommended. Third, in respect of the market risk premium, continued use of the generally employed figure of 6% is recommended. Finally, regarding the differential taxation of capital gains and ordinary income, the simplifying assumption in the Officer model that they are equally taxed could lead to an error in estimating the cost of equity of up to 2% if individual firm values for the dividend yield are used, and up to 1.1% if industry average values are used. Whether this is a sufficiently large sum to warrant concern, and whether the ACCC should lead in this area, are arguable.
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