2. Other dividend policy issues Several factors affect a firm's ability to pay a dividend. Three such factors are described in the table: profitability (an increase in net income), investment opportunities, and capital structure an increase in the debt ratio). Use the table to indicate how a firm's ability to pay a dividend is affected by the factors described. (Hint: Consider each factor in isolation, with everything else held the same.) Factors Affecting Dividend payment Ability to Pay Dividends Net income increases. The ability to pay dividends More profitable investment opportunities are available. The ability to pay dividends The firm increases its debt ratio. The ability to pay dividends Dernham Burnham Inc. is a typical company that is very concerned with meeting investors' expectations and keeping investors happy. Its earnings tend to fluctuate from year to year because of the nature of the business the company is in. Which of these statements most likely describes Dernham Burnham Inc.'s dividend policy? Dernham Burnham Inc. will use a residual dividend policy because it will increase the firm's I, and increase the value of the firm. Dernham Burnham Inc. will pay a stable, predictable dividend because it will lower the firm's rs and increase the value of the firm