Three independent projects

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Reference no: EM131412320

Quantitative Problem: Lane Industries is considering three independent projects, each of which requires a $2.8 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 = 14%

IRR = 16%

Project M (medium risk):

Cost of capital = 10%

IRR = 8%

Project L (low risk):

Cost of capital = 6%

IRR = 7%

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 $4,300,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to 2 decimal places.

Reference no: EM131412320

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