Dividend payout ratio using residual model The Audino Construction Company is considering 3 independent projects, each of which requires a $5 million investment. The estimated IRR and cost of capital for these projects are provided below: Project H (High Risk), CofC = 16%, IRR = 20% Project M (Medium Risk), CofC = 12%, IRR = 10% Project L (Low Risk), CofC = 8%, IRR = 9% Note that the projects' cost of capital varies because the projects have different levels of risk. The firm's optimal capital structure calls for 50% debt and 50% common equity. Audino expects to have net income of $7,287,500. If Audino bases its dividends on the residual model, what will its payout ratio be? Show all work
Dividend payout ratio using residual model The Audino Construction Company is considering 3 independent projects, each of which requires a $5 million investment. The estimated IRR and cost of capital for these projects are provided below: Project H (High Risk), CofC = 16%, IRR = 20% Project M (Medium Risk), CofC = 12%, IRR = 10% Project L (Low Risk), CofC = 8%, IRR = 9% Note that the projects' cost of capital varies because the projects have different levels of risk. The firm's optimal capital structure calls for 50% debt and 50% common equity. Audino expects to have net income of $7,287,500. If Audino bases its dividends on the residual model, what will its payout ratio be? Show all work
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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Dividend payout ratio using residual model
The Audino Construction Company is considering 3 independent projects, each of which requires a $5 million investment. The estimated IRR and cost of capital
for these projects are provided below:
Project H (High Risk), CofC = 16%, IRR = 20%
Project M (Medium Risk), CofC = 12%, IRR = 10%
Project L (Low Risk), CofC = 8%, IRR = 9%
Note that the projects' cost of capital varies because the projects have different levels of risk. The firm's optimal capital structure calls for 50% debt and
50% common equity. Audino expects to have net income of $7,287,500.
If Audino bases its dividends on the residual model, what will its payout ratio be?
Show all work
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