Evaluate what will be lane industries payout ratio

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Reference no: EM132066302

Quantitative Problem: Lane 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 = 15%	IRR = 17%
Project M (medium risk):	Cost of capital = 10%	IRR = 8%
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 $3,600,000.

If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to 2 decimal places.

Reference no: EM132066302

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