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 here: Project H (high risk): Cost of capital = 16% IRR = 20% Project M (medium risk): Cost of capital = 12% IRR = 13% 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 60% debt and 40% common equity, and it expects to have net income of $7,126,500. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
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 here: Project H (high risk): Cost of capital = 16% IRR = 20% Project M (medium risk): Cost of capital = 12% IRR = 13% 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 60% debt and 40% common equity, and it expects to have net income of $7,126,500. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 8P
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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 = 20% |
Project M (medium risk): | Cost of capital = 12% | IRR = 13% |
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 60% debt and 40% common equity, and it expects to have net income of $7,126,500. 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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