Question
14-9 Residual Distribution Policy--Second time posting! The answer has been provided. It is 17.89%. The supporting work and formulas must be provided to support answers.
14-9 Residual Distribution Policy--Second time posting!
The answer has been provided. It is 17.89%. The supporting work and formulas must be provided to support answers. This is being submitted a second time as the first time the work provided supported a wrong answer.
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 capital. These projects have different levels of risk and therefore different costs of capital. The projected IRRs and costs of capital are as follows:
Project A Cost of Capital = 17%; IBR = 20%
Project B Cost of Capital = 13%; IBR = 10%
Project C Cost of Capital = 7%; IBR = 9%
Harris intends to maintain its 35% debt and 65% common equity capital structure and its net income is expected to be $4,750,00. If Harris maintains its residual dividend policy (with all distributions in the form of divedends) what will its payout ratio be? (Answer is 17.89%--Show all work and formula to support answer.)
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