RESIDUAL DIVIDEND MODEL 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:
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, and it expects to have net income of $7,287,500. If Welch establishes its dividends from the residual dividend model, what will be its payout ratio?