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 cost of capital. There projected IRR are as follows

 

capital cost of A = 17% IRR = 20%

 

capital cost of B = 13% IRR = 10%

 

capital cost of C = 7% IRR = 9%

 

Harris intends to maintain its 35% debt and 65% common equity capital structure, and its net income is expected to be $4,750,000. If Harris maintains its residual dividend policy what will its payout ratio be?

 

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