Common equity capital structure

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Residual Distribution Policy 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 investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows:

Project A: Cost of capital = 16%; IRR = 17% Project B: Cost of capital = 14%; IRR = 15%

Project C: Cost of capital = 7%; IRR = 9%

Harris intends to maintain its 40% debt and 60% common equity capital structure, and its net income is expected to be $14,387,500. If Harris maintains its residual dividend policy (with all distributions in the form of dividends), what will its payout ratio be? Round your answer to two decimal places.

Reference no: EM132074353

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