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Lane Industries is considering three independent projects, each of which requires a $1.8 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 = 13% IRR = 15%
Project M (medium risk): Cost of capital = 9% IRR = 7%
Project L (low risk): Cost of capital = 10% IRR = 11%

Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 40% debt and 60% common equity, and it expects to have net income of $3,500,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to 2 decimal places.

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Jarrod Robel
Jarrod RobelLv2
28 Sep 2019

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Welch Company is considering three independent projects, each of which requires a $5 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects is presented below:

Project H (High risk): Cost of capital = 15% IRR = 18%
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