Dividend payout ratio using residual model The Audino Construction Company is co

Question

Dividend payout ratio using residual model

The Audino Construction Company is considering 3 independent projects, each of which requires a $5 million investment. The estimated IRR and cost of capital for these projects are provided below:

Project H (High Risk), CofC = 16%, IRR = 20%
Project M (Medium Risk), CofC = 12%, IRR = 10%
Project L (Low Risk), CofC = 8%, IRR = 9%

Note that the projects' cost of capital varies because the projects have different levels of risk. The firm's optimal capital structure calls for 50% debt and 50% common equity. Audino expects to have net income of $7,287,500.

If Audino bases its dividends on the residual model, what will its payout ratio be?

Show all work

Explanation / Answer

At resonance the cpacitive and inductive reactance are such that they cancel each other and the circuit is entirely resistive at that point so At resonance the current is given as I(rms) =Erms/R = 125/740 = 0.169 A = 1.69*10^-1 A Now for series RLC circuit the resonant frequency is given as w = 2pf = 1/vLC = 1/v41*10^-3*0.44*10^-3 f = 37.94 Hz The inductive reactance at resoanant frequency is given as XL = jwL = j2pf*L = j*2*p*37.94*41*10^-3 = j9.77 ohm =9.77 angle(90) as 9.77 angle(90) = 9.77cos 90 + j9.77sin(90) =0+ j9.77 So the voltage across the inductor is given as VL = I*XL = 0.169*9.77 angle(90) = 1.65 angle(90) Note this is the rms value for the peak valie the voltage is to be muliplied by v2 VL(peak) = VL*v2 =2.335angle(90) Volts

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---