The Welch Company is considering three independent projects, each of which requires a $5 million investment The estimated internal rate of return (IRR) and cost of capital for these projects are as follows Project H (high risk) Cost of capital 16 IRR 20 Project M (medium risk) Cost of capital 12 IR...

Capital budget should be 10 million We know tha ...

The Welch Company is considering three independent projects, each of which requires a $5 million investment. The

Question:

The Welch Company is considering three independent projects, each of which requires a $5 million investment. The estimated (IRR) and for these projects are as follows:
Project H (high risk): Cost of capital = 16%; IRR = 20%
Project M (medium risk): Cost of capital = 12%; IRR = 10%
Project L (low risk): Cost of capital = 8%; IRR = 9%
Note that the projects’ varies because the projects have different levels of risk. The company’s optimal calls for 50% debt and 50% common equity. Welch expects to have net income of $7,287,500. If Welch bases its dividends on the residual model (all distributions are in the form of dividends), what will its payout ratio be?

Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...