If welch establishes its dividends from the residual, Finance Basics

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If welch establishes its dividends from the residual

Welch Company is considering three independent projects, each of which requires a $4 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 = 17%	IRR = 18%
Project M (Medium risk):	Cost of capital = 13%	IRR = 13%
Project L (Low risk):	Cost of capital = 8%	IRR = 12%

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 $14,248,500. If Welch 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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Finance Basics: If welch establishes its dividends from the residual

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Finance Basics: If welch establishes its dividends from the residual

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Reference No:- TGS0600969

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