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 $3 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 = 17%
Project B: Cost of capital = 13%; IRR = 14%
Project C: Cost of capital = 7%; IRR = 8%
Harris intends to maintain its 55% debt and 45% common equity capital structure, and its net income is expected to be $9,589,500. 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.
_______%