Solution-Residual distribution policy

Residual distribution policy

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Reference no: EM131158547

Residual Distribution Policy

Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $3 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows:

Project A:	Cost of capital = 18%; IRR =	17%
Project B:	Cost of capital = 11%; IRR =	12%
Project C:	Cost of capital = 9%; IRR =	10%

Harris intends to maintain its 40% debt and 60% common equity capital structure, and its net income is expected to be $13,158,000. If Harris maintains its residual dividend policy (with all distributions in the form of dividends), what will its payout ratio be? Round your answer to two decimal places.

Reference no: EM131158547

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Residual distribution policy

Reference no: EM131158547

Reference no: EM131158547

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