What will be its payout ratio

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Question - Lane Industries is considering three independent projects, each of which requires a $2.5 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 $4,000,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.

Reference no: EM133022989

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