The net impact of an increase in payout ratio on price-to-book value (PBV) ratio cannot be determined because it might also: A. decrease the market value of the firm. B. decrease expected growth. C. decrease required rate of return.
If payout increases, the growth of the firm may slow down, because internally generated funds are not being invested in new, profitable projects. Hence, the net impact on the PBV ratio from change in payout ratio cannot be determined.
