: Grant Grocers is considering the following independent, average-risk investment projects:

Project

Size of Project

Project IRR

Project V

$1.0 million

12.0%

Project W

1.2 million

11.5

Project X

1.2 million

11.0

Project Y

1.2 million

10.5

Project Z

1.0 million

10.0

The company has a target capital structure that consists of 50 percent debt and 50 percent equity. Its after-tax cost of debt is 8 percent, its cost of equity is estimated to be 13.5 percent, and its net income is $2.50 million. If the company follows a residual dividend policy, what will be its payout ratio?