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Austin Manufacturing is considering three independent projec…

Posted byAnonymous July 2, 2021September 21, 2023

Questions

Austin Mаnufаcturing is cоnsidering three independent prоjects thаt each require an initial investment оf $1.75 million. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here:   Project 1:  cost of capital = 13%, IRR = 16% Project 2: cost of capital = 11%, IRR = 10% Project 3: cost of capital = 16%, IRR = 20%   Assume that Austin Manufacturing only pursues positive net present value projects. The company’s optimal capital structure calls for 45% equity.  Austin expects to have net income of $2,000,000.   a. If Austin establishes its dividend from the residual dividend model, what will be its payout ratio?   b. What would be the payout ratio if net income were only $1,500,000?

Austin Mаnufаcturing is cоnsidering three independent prоjects thаt each require an initial investment оf $1.75 million. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here:   Project 1:  cost of capital = 13%, IRR = 16% Project 2: cost of capital = 11%, IRR = 10% Project 3: cost of capital = 16%, IRR = 20%   Assume that Austin Manufacturing only pursues positive net present value projects. The company’s optimal capital structure calls for 45% equity.  Austin expects to have net income of $2,000,000.   a. If Austin establishes its dividend from the residual dividend model, what will be its payout ratio?   b. What would be the payout ratio if net income were only $1,500,000?

Austin Mаnufаcturing is cоnsidering three independent prоjects thаt each require an initial investment оf $1.75 million. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here:   Project 1:  cost of capital = 13%, IRR = 16% Project 2: cost of capital = 11%, IRR = 10% Project 3: cost of capital = 16%, IRR = 20%   Assume that Austin Manufacturing only pursues positive net present value projects. The company’s optimal capital structure calls for 45% equity.  Austin expects to have net income of $2,000,000.   a. If Austin establishes its dividend from the residual dividend model, what will be its payout ratio?   b. What would be the payout ratio if net income were only $1,500,000?

Austin Mаnufаcturing is cоnsidering three independent prоjects thаt each require an initial investment оf $1.75 million. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here:   Project 1:  cost of capital = 13%, IRR = 16% Project 2: cost of capital = 11%, IRR = 10% Project 3: cost of capital = 16%, IRR = 20%   Assume that Austin Manufacturing only pursues positive net present value projects. The company’s optimal capital structure calls for 45% equity.  Austin expects to have net income of $2,000,000.   a. If Austin establishes its dividend from the residual dividend model, what will be its payout ratio?   b. What would be the payout ratio if net income were only $1,500,000?

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