Walsh Company is considering three independent projects, each of which requires a $4 million investment. The estimated internal
1 answer:
Answer:
27.3134%
Explanation:
Note: The full question is attached as picture below
In this question is concerned, projects to be accepted will be those whose IRR is greater than the cost of capital . The projects H and L have a greater IRR than their Cost of capital.
Under residual dividend model, earnings remaining after meeting all potential projects is distributed as dividend . Funds required for projects H and L = ($4 million * 2) = $8 million
To be financed through equity = $8 million * 65%
To be financed through equity = $5,200,000
Expected net income = $7,154,000
Thus, the dividend = $7,154,000 - $5,200,000 = $1,954,000
The Payout ratio = Dividends / Earnings = $1,954,000 / $7,154,000 = 0.273134 = 27.3134%
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