Question
A company has provided the following financial data: Target capital structure is 60% debt and 40% equity. After-tax cost of debt is 7%. Cost of
A company has provided the following financial data:
- Target capital structure is 60% debt and 40% equity.
- After-tax cost of debt is 7%.
- Cost of retained earnings is estimated to be 15%.
- Cost of equity is estimated to be 16% if the company issues new common stock.
- Net income is $5,000.
The company is considering the following investment projects:
| Project | Size of project | IRR of project |
| Project A | $3,000 | 12.0% |
| Project B | $2,400 | 11.0% |
| Project C | $2,200 | 10.0% |
| Project D | $2,000 | 9.0% |
| Project E | $1,600 | 8.0% |
If the company follows a residual dividend policy, calculate the payout ratio.
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Financial Deregulation A Historical Perspective
Authors: Alexis Drach, Youssef Cassis
1st Edition
978-0198856955
