14-9 Residual Distribution Policy--Second time posting!
The answer has been provided. It is 17.89%. The supporting work and formulas must be provided to support answers. This is being submitted a second time as the first time the work provided supported a wrong answer.
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 capital. These projects have different levels of risk and therefore different costs of capital. The projected IRRs and costs of capital are as follows:
Project A Cost of Capital = 17%; IBR = 20%
Project B Cost of Capital = 13%; IBR = 10%
Project C Cost of Capital = 7%; IBR = 9%
Harris intends to maintain its 35% debt and 65% common equity capital structure and its net income is expected to be $4,750,00. If Harris maintains its residual dividend policy (with all distributions in the form of divedends) what will its payout ratio be? (Answer is 17.89%--Show all work and formula to support answer.)
14-9 Residual Distribution Policy--Second time posting!
The answer has been provided. It is 17.89%. The supporting work and formulas must be provided to support answers. This is being submitted a second time as the first time the work provided supported a wrong answer.
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 capital. These projects have different levels of risk and therefore different costs of capital. The projected IRRs and costs of capital are as follows:
Project A Cost of Capital = 17%; IBR = 20%
Project B Cost of Capital = 13%; IBR = 10%
Project C Cost of Capital = 7%; IBR = 9%
Harris intends to maintain its 35% debt and 65% common equity capital structure and its net income is expected to be $4,750,00. If Harris maintains its residual dividend policy (with all distributions in the form of divedends) what will its payout ratio be? (Answer is 17.89%--Show all work and formula to support answer.)
Related questions
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.
