Dividends = Net income - [(Target equity ratio)(Total capital budget)]

Quantitative Problem:Lane Industries is considering three independent projects, each of which requires a $1.7 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 = 12%IRR = 14%Project M (medium risk):Cost of capital = 10%IRR = 8%Project L (low risk):Cost of capital = 11%IRR = 12%

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 $3,400,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to 2 decimal places.

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