Quantitative Problem: Lane Industries is considering three independent projects, each of which requires a $2.7 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 = 9% IRR = 7% 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 $3,300,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
Quantitative Problem: Lane Industries is considering three independent projects, each of which requires a $2.7 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 = 9% IRR = 7% 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 $3,300,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
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
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Quantitative Problem: Lane Industries is considering three independent projects, each of which requires a $2.7 million investment. The estimated
| Project H (high risk): | Cost of capital = 14% | IRR = 16% |
| Project M (medium risk): | Cost of capital = 9% | IRR = 7% |
| 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 $3,300,000. If Lane 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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