Walsh Company is considering three independent projects, each of which requires a $3 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented below: Project H (High risk): Cost of capital = 16% IRR = 19% Project M (Medium risk): Cost of capital = 13% IRR = 11% Project L (Low risk): Cost of capital = 8% IRR = 9% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 30% debt and 70% common equity, and it expects to have net income of $7,268,000. The data has been collected in the Microsoft Excel Online file below . Open the spreadsheet and perform the required analysis to answer the question below. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Walsh Company is considering three independent projects, each of which requires a $3 million investment. The estimated
Project H (High risk): Cost of capital = 16% IRR = 19% Project M (Medium risk):
Cost of capital = 13% IRR = 11% Project L (Low risk):
Cost of capital = 8% IRR = 9%
Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 30% debt and 70% common equity, and it expects to have net income of $7,268,000. The data has been collected in the Microsoft Excel Online file below
. Open the spreadsheet and perform the required analysis to answer the question below.
If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio?
Round your answer to two decimal places.
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