Niagara Packers is considering three independent projects, each of which requires a $1.8 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented below:

That the projects' cost of capital varies because the projects have different levels of risk. The company's optimal capital structure calls for 30% debt and 70% common equity. Welch expects to have net income of $3,150,000. If Niagara bases its dividends on the residual model (all distributions are in the form of dividends), what will its payout ratio be?

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Project H (high risk): Project M (medium risk): Project L low risk): Cost of capital Cost of capital Cost of capital = 10%; IRR 14%; IRR = 16% 12%; IRX-13% 9%