This paper concentrates on the primary theme of RESIDUAL DISTRIBUTION POLICY HARRIS COMPANY MUST SET ITS INVESTMENT AND DIVIDEND POLICIES FOR THE… in which you have to explain and evaluate its intricate aspects in detail. In addition to this, this paper has been reviewed and purchased by most of the students hence; it has been rated 4.8 points on the scale of 5 points. Besides, the price of this paper starts from £ 40. For more details and full access to the paper, please refer to the site.
Residual Distribution Policy
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 $4 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows:
|Project A:||Cost of capital = 15%; IRR =||21%|
|Project B:||Cost of capital = 13%; IRR =||12%|
|Project C:||Cost of capital = 7%; IRR =||9%|
Harris intends to maintain its 40% debt and 60% common equity capital structure, and its net income is expected to be $8,637,000. If Harris maintains its residual dividend policy (with all distributions in the form of dividends), what will its payout ratio be? Round your answer to two decimal places.