The Scanlon Company's optimal capital structure calls for 50 percent debt and 50 perc
The Scanlon Company's optimal capital structure calls for 50 percent debt and 50 percent common equity. The interest rate on its debt, rd, is a constant 10 percent; its cost of common equity from retained earnings, rs, is 14 percent; the cost of equity from new stock, re, is 16 percent; and its marginal tax rate is 40 percent. Scanlon has the following investment opportunities:
Project A: Cost = $5 million; IRR = 20%
Project B: Cost = $5 million; IRR = 12%
Project C: Cost = $5 million; IRR = 9%
Scanlon expects to have net income of $7,287,500. If Scanlon bases its dividends on the residual dividend policy, what will its payout ratio be?