Walsh Company is considering three independent projects, each of which requires a $3 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 = 16%IRR = 20%Project M (medium risk):Cost of capital = 12%IRR = 13%Project L (low risk):Cost of capital = 8%IRR = 9%Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 60% debt and 40% common equity, and it expects to have net income of $7,126,500. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %

As per the capital budgeting decision rules: If the cost of equity is less than the internal rate…

Answered: Walsh Company is considering three…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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Walsh Company is considering three independent projects, each of which requires a $3 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 = 16%	IRR = 20%
Project M (medium risk):	Cost of capital = 12%	IRR = 13%
Project L (low risk):	Cost of capital = 8%	IRR = 9%

Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 60% debt and 40% common equity, and it expects to have net income of $7,126,500. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.

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