Welch Company is considering three independent projects, each of which requires a $5 million investment. The estimated

Question:

Welch Company is considering three independent projects, each of which requires a $5 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here:

IRR = 20% IRR = 10% Project H (high risk): Project M (medium risk): Project L (low risk): Cost of capital = 16% Cost of

Note that the projects’ costs of capital vary because the projects have different levels of risk. The company’s optimal capital structure calls for 50% debt and 50% common equity. Welch expects to have net income of $7,287,500. If Welch establishes its dividends from the residual model, what will be its payout ratio?

Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...