Lone Industries is considering three independent projects, each of which requires a $2 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 = 12% - IRR = 14%- **Project M (medium risk):** - Cost of capital = 8% - IRR = 6%- **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 $4,200,000. If Lone establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.

Payout ratio is the financial metric which shows the proportion of earnings of a company is…

Answered: Lone Industries is considering three…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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