7. Factors that influence dividend policy Aa Aa Distribution decisions are complicated and involve the understanding of critical strategic factors that affect the policy and value of a firm. Thus, the management of any firm has to consider the constraints on dividend payments, the availability and cost of alternative sources of capital, and other external factors when they create and implement their distribution policy Based on your understanding of the constraints on dividend payments, identify the type of constraint this condition represents. Assume that all other factors are held constant. Intended to protect creditors from a company distributing most of its assets to stockholders if it looks as if it is about to go under O Bond indenture O Preferred stock restriction O Impairment of capital rule A company's dividend policy can also be affected by factors internal to the organization and by the external (macroeconomic) environment in which the business operates. In the table that follows, identify which factors, in general, tend to favor high or low dividend payout ratios. Favors a Favors a Factor High Payout Low Payout Taxes on capital gains are deferred until the capital gain is realized, but taxes on dividend income are due in the year in which the dividends are received A firm has a history of stable earnings and expects earnings stability in the future A firm expects to need financing in the future and wants to avoid the risk of dilution associated with the issuance of new shares A firm that can increase its debt ratio without raising its weighted average cost of capital sharply is have a stable dividend policy likely to