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Would recommend that the firm increase payout ratio

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Reference no: EM132684546

You are a financial consultant and specialize in providing advice regarding financial modeling. One of your major clients is a large manufacturing firm. The firm is expecting a strong level of sales growth which will lead to a higher net profit margin and will require the addition of new warehouses and new distribution centers. The firm's average collection period (ACP) will not be affected.

The manufacturing firm's CEO comments, "Due to our higher expected profitability, our shareholders will be expecting a larger dividend. Therefore, we should increase our payout ratio."

Problem 1: Would you recommend that the firm increase its payout ratio? Briefly explain

Reference no: EM132684546

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