7. Factors that influence dividend policy Aa Distrib ution decisions are complicated and involve the understanding of criticalstrategic factorsthat affectthe policy and value of a firm. Thus, the management of anyfnm has to consider the constraints on dividend payments, the availability and cost of altermative sources of capital, and other extermal factorswhen 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 other factors are held constant. States that common stock dividends cannot be pald if the company has not p its prefemedstock dividends. O Band indenture O Preferred stock restriction O impairment of capital rule A company's dividend policy can also be affected by factors intermal to the organization and by the extemal (maaroeconomic 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. High Payout Low Payout Afirm has several investment oppartunities and limited internal cash flow generation. o o A firm h limited investmen opportunities. Afrm expects to need financing in the future and wants to avoid the risk of dilution O associated with the issuance of new shares. A firm that can inc rease its debt ratio without raising its weighted average cost of capital sharply is kely to have a stable dividend policy