Question: 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 $6 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 = 17%; IRR = 16%
Project B: Cost of capital = 13%; IRR = 10%
Project C: Cost of capital = 6%; IRR = 9%
Harris intends to maintain its 35% debt and 65% common equity capital structure, and its net income is expected to be $15,000,000. 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.
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