Three independent projects, each of which requires a RS 5 million investment are being considered for investment purpose by Sona Tea Company. The cost of capital and estimated internal rate of return (IRR) for these projects are shown below: Project Cost of capital IRR A 16% 20% B 12% 10% C 8% 9% Company’s capital structure involves only debt and equity financing with the ratio of 50% each. The estimated net income from the selected projects is expected to be RS 7,287,500. What should be the dividend payout ratio If Sona tea company estimate its dividends based on the residual dividend model?

Three independent projects, each of which requires a RS 5 million investment are being considered for investment purpose by Sona Tea Company. The cost of capital and estimated internal rate of return (IRR) for these projects are shown below: Project Cost of capital IRR A 16% 20% B 12% 10% C 8% 9% Company’s capital structure involves only debt and equity financing with the ratio of 50% each. The estimated net income from the selected projects is expected to be RS 7,287,500. What should be the dividend payout ratio If Sona tea company estimate its dividends based on the residual dividend model?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 11P

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